Hong Kong faces 25% residential price correction in three years

Following 3% increase in 2015.

It has been noted that there is slowing economic growth in China and Hong Kong, potentially rising HKD interest rates, rising new home completions and the prospect of a weaker labour market.

According to a research note from Credit Suisse, this combination has led them to expect the Hong Kong residential property market to weaken.

It forecast prices to drop 15%/5%/5% in 2016/2017/2018, following a 3% increase in 2015.

Here's more from Credit Suisse:

In spite of rounds of austerity measures by the Hong Kong government since late 2009, Hong Kong property prices have almost doubled and are up 90%. Affordability of properties has become uncomfortable compared to a 41% increase in overall medium monthly household income to HK$25,000 and median private household incomes up 43% to HK$35,000. Buyers are now buying smaller or even shoebox units.

Expectations of a delay in interest rate hike, prolonged undersupply, low unemployment and uninterrupted property price rally have played a key role in pushing up the market, but the rally has not been supported by volume in the secondary market. There were about 1,700 secondary homes transacted in October—the lowest in the last two decades.

Sellers in the secondary market are also facing serious competition from developers, who are pricing almost at par with secondary prices versus the historic average of 17% between 2005 and 2014. New properties, more favourable payment terms, assistance in getting second mortgages and for those who already own a property, longer time horizon to dispose the existing properties so as to avoid double stamp duty (DSD), are making primary projects more easily accessible.