Buyer sentiment adopts a Cautious Stance amidst High Interest Rates, while Leasing Market gains momentum

The Rating and Valuation Department has recently released the latest property price index, revealing a decline of 1.23% in May. This marks a softening in the index after two consecutive months of growth, bringing it back to the level recorded in October 2016.

Across different unit types and sizes, all indices experienced a monthly decrease in May. Small to medium-sized units (Class A, B & C) saw a 1.3% decline, with a reported index of 307.2 points. Large-sized units (Class D & E) recorded a 1.2% drop, with an index of 278.3 points.

Notably, Class E units had the most significant decrease, with a month-on-month drop of 1.85%, reaching 275.3 points, close to its record in August 2016. Following that, Class B units experienced a 1.39% decline, falling below the 300-point mark for the year and returning to the level recorded in January 2017. Class A and Class D units saw respective monthly declines of 1.33% and 0.99%, with reported indices of 326.8 points and 279.1 points. Class C units reported an index of 291 points, representing a 0.38% monthly decrease.

Cumulatively for the first five months, property prices have fallen by 1.73%. When compared to the historical peak of 398.1 points in September 2021, the accumulated decline in property prices has widened to 23.2%.

The residential market is facing pressure from low-priced strategies in the primary market, along with high borrowing costs that significantly undermine the bargaining power of secondary property owners. As a result, they are reluctantly forced to lower prices in response to the flat pricing of new units. This has led to a downturn in secondary property prices following a two-month withdrawal of cooling measures. It is expected that the situation will continue in June, with property prices projected to decline by approximately 1.3%, translating to a 2% decline in the next quarter. Therefore, property prices for the first half of the year are expected to decline by approximately 3%.

Developers still have ample inventory, and they are expected to accelerate sales for new launches, which will continue to exert pressure on the secondary market. With no immediate signs of a decrease in borrowing costs, property prices in the third quarter have the potential to decline by approximately 1% each month, resulting in a cumulative decline of about 3%. The fourth quarter's outcome will depend on the latest trends in interest rates at that time, as well as the extent and pace of market entry by professionals. If the situation is favorable, property prices may stabilize and remain steady. However, if conditions worsen, they may decline by an additional 2% within the quarter, leading to a potential cumulative decline of approximately 6% to 8% for the entire year 2024.

Despite the softening of property prices in May, rental prices have experienced consistent growth during the same period. According to data released by the Rating and Valuation Department, the rental price index for May reached 189 points, reflecting a monthly increase of 1.02%. This marks the third consecutive month of growth, resulting in a total increase of 2.5%. The rental price index has reached its highest level since January 2020.

Rents eased across all categories except one, with Class B units showing the highest increase at 188.5 points, representing a 1.51% monthly increase. Classes A and C followed closely at 208.9 and 160.9 points, respectively, with a 0.53% and 1.07% monthly increase. The Class D reached 150.2 points in May, reflecting a 0.2% monthly increase. The Class E index remained stable at 139.8 points, the same level as in December 2023.

The rental index is expected to continue rising by 1% in June, leading to an estimated increase of 3.13% for the next quarter and 2.63% for the first half of the year. The peak summer season and the continuous influx of professionals into Hong Kong, further boosting rental demand, are expected to drive the rental increase in the third quarter, potentially expanding it to 5%. The fourth quarter is anticipated to remain stable with a potential increase of 2%. Overall, the rental index may experience a growth rate of 8% to 10% for the entire year.