In Focus
RESIDENTIAL PROPERTY | Staff Reporter, Hong Kong

Hong Kong's housing shortage unlikely safeguard against sharp price plunge: S&P

The pandemic measures in Hong Kong have aggravated its preexisting economic problems.

A shortage of housing in Hong Kong may be a safeguard against a sharp price plunge in the residential market, according to a recently published report by S&P Global Ratings, titled “Hong Kong's Tight Property Supply Becomes An Advantage.”

The credit rating agency and financial services firm anticipates the city's residential property prices to fall a further 5% in 2021 after sliding by about 7% at end-October from their peak in June 2019

Moreover, annual private housing completions have declined by 30% from 2010 to 2019 compared against the decade prior, despite the hike in population, noted S&P Global Ratings credit analyst Edward Chan. Vacancy rates have also been dropping, and many developers are noted to have postponed launches this year.

“We believe transaction volumes in the primary residential market will rebound in 2021 as social distancing measures gradually ease, and sales launch on new developments,” S&P Global Ratings commented.

The expected rebound in home sales volume should shield Hong Kong developers from weaknesses in their rental portfolios, the firm added.

Despite these less-than-stellar conditions in the residential property market, the sector is expected to fare better than their commercial and retail property counterparts.

Conditions are forecasted to be tougher for landlords in the retail and commercial property market, as it have a harder time recovering from the prolonged economic stress.

“Even without lockdowns and curfews as elsewhere, comprehensive pandemic measures in Hong Kong have exacerbated pre-existing economic problems,” S&P Global Ratings said in the report, adding that Hong Kong’s GDP has shrunk for the fifth consecutive quarter YoY as of 30 September, and unemployment is at a 16-year high of 6.4%.

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The firm believes landlords will continue renewing most of their retail leases at lower rates in 2021, adding that rated landlords with high exposure to high-end shopping are more exposed than peers focused on the mass market.

Meanwhile, spot office rents in prime business districts such as Central have dropped by more than 20% from a peak in early 2019 and likely have further to go, S&P Global Ratings added. 

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