Interest Rates Are Expected to Peak in 2023 Further Border Reopening to Bring About Market Stability

HONG KONG SAR - Media OutReach - 15 December 2022 - Global real estate services firm Cushman & Wakefield announced the Hong Kong Property Market 2022 Review and 2023 Outlook today. The overall property market remained quiet in 2022 as investment and business sentiment stayed cautious, impacted by interest rate hikes and other factors such as global economic instability.

• Residential market transactions slowed noticeably in 2022; full-year transactions are now forecast to record a decade low, with a price decline further accelerating in Q4.
• The large-sized (non-residential, exceeding HK$100 million) real estate investment consideration in 2022 (as of 9 Dec) dropped by almost 45% y-o-y; industrial and development sites remained most attractive to investors.
• 2022 (as of mid-Nov) office net absorption returned to positive territory at 176,000 sq ft NFA, the first positive year since 2019, yet high availability has kept rents under pressure.
• High street retail rents have dropped, but inbound tourist numbers have gradually risen in the last few months, with some retailers strategizing ahead to prepare for further border reopening.

Residential market: Prices dropped more than 10% in 2022 YTD, a further 0%–5% decline is expected in 2023 The residential market slowed noticeably in 2022, with average monthly transactions of less than 4,000 units (Jan to Nov 2022). Whilst buying sentiment in 1H 2022 was mainly affected by the fifth wave of the pandemic, the market witnessed other emerging impacts in 2H 2022, including rising interest rates and stock market volatility, which prompted buyers to remain cautious and transactions to slow in both primary and secondary markets. Total 2022 transaction volume is now estimated at circa 45,400 units, the lowest level of the past decade. As for residential prices, government data shows that overall property prices retreated by 10.5% in the first 10 months of 2022, and we expect an annual price drop of 12%–13% by the end of this year. Cushman & Wakefield’s home price tracker showed an accelerated price decline in Q4. Prices at City One Shatin (mass market) declined by 18.1% q-o-q, returning to the early-2017 level, whilst Taikoo Shing (mid-market) and Residence Bel-Air (luxury homes) dropped by 14.4% q-o-q and 6.4% q-o-q, respectively. Cushman & Wakefield’s Executive Director and Head of Research, Hong Kong, Rosanna Tang, said: “Looking ahead to 2023, buyers' appetite will likely still be affected by interest rate hikes and global economic uncertainties, and some homeowners may provide greater room for negotiation due to pressures from rising mortgage payments. Property prices are forecast to further correct in 1H 2023 yet we may see prices stabilize in 2H, as interest rates could potentially peak mid-year, bringing the full-year home price decline into the 0%–5% range. In terms of transaction volume, the primary market transaction slowdown in 2022 may prompt developers to accelerate their new launches in 2023, with prices closer to the secondary market to attract buyers. On a brighter note, a continued upward trend in the stock market next year, coupled with the potential border reopening, could help to bring some positive spin to the city’s economy and housing market, and hence support 2023 residential transactions to rebound by 20%–30% y-o-y, to reach similar levels as seen in 2019 and 2020." Non-residential Investment Market: Sentiment turned quiet in 2H; 2022 deal count and total considerations to fall behind 2021 Buffeted by interest rate hikes, investors generally adopted a cautious and wait-and-see stance in 2H 2022. The large-sized non-residential transactions (over HK$100 million) stayed relatively quiet with only 93 deals recorded in 2022 (as of 9 Dec), sending total investment volume down by more than 40% y-o-y to HK$54.6 billion, with most transactions front-loaded in 1H 2022. Local investors and developers, as well as institutional funds, were the key purchasers in the market. Defensive assets including industrial and development sites continued to gain traction with investors, thanks to sustained demand for logistics warehouses and new economic sectors such as data centres and cold storage. Some developers were also actively seeking investment partners or operators for joint venture industrial or redevelopment site opportunities. Cushman & Wakefield’s Executive Director and Head of Capital Markets, Hong Kong, Tom Ko, commented: “Overall...