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Hong Kong’s largest developers have shed a fifth of their market value this year, as the city’s dollar peg forces it to match the Federal Reserve’s “higher for longer” approach to interest rates.
Shares in the Asian financial hub’s five largest builders had surged in December and January as local home prices rose and global investors bet on a robust rebound in Chinese growth.
But rate rises enacted by the Hong Kong Monetary Authority to match those of the Fed, which are necessary to maintain the city’s US dollar peg, have undermined an already anaemic recovery for the local economy.
Five of Hong Kong’s biggest developers — Sun Hung Kai Properties, CK Asset Holdings, Henderson Land Development, Sino Land and Hang Lung Properties — have lost $20bn in market value this year.
“Interest rates are still the number one key factor, with ‘higher for longer’ putting pressure on share prices,” said Karl Choi, research head for greater China property at Bank of America, referring to expectations that the Fed will prove slow to start easing once it stops raising rates. “Clearly the economic slowdown in mainland China hasn’t helped either.”
Analysts say economic fallout from the peg’s defence and slowing Chinese growth could drag developer shares even lower. Billionaire tycoon Li Ka-shing’s CK Asset has cut new home prices to the lowest levels in seven years, while sales agents expect developers to delay more sales of finished units in the months ahead.
The rout for Hong Kong’s real estate stocks marks the latest serious setback for the city’s developers. Home sales plummeted during the pandemic thanks to a harsh zero-Covid regime and an exodus of more than 140,000 residents, driven by both economic and political concerns as Beijing’s grip on the city has tightened.
The elevated cost of lending from rate rises has begun to feed through to mortgage rates in Hong Kong, with HSBC raising its maximum mortgage rate by 0.5 percentage points to 4.125 per cent last month in an effort to preserve profit margins, even as economists lowered their growth forecasts for the city.
Asif Ghafoor, founder of Hong Kong-based property listing platform Spacious, said developers seeking to liquidate existing inventory at a discount could push prices lower next year. Société Générale has forecast Hong Kong’s home prices to fall as much as 15 per cent next year.
Developers have called for greater policy support and Paul Chan, the territory’s financial secretary, said late last month that the government was reviewing cooling measures imposed during previous attempts to rein in once-searing home price rises.
“We have noticed that the current property market performance is quite different from that when we first introduced the [cooling] measures . . . and we are constantly reviewing them,” Chan said.
But Choi, at Bank of America, said any easing of such measures “is likely to only slow, not reverse, the home price drop we’re forecasting”.
Stewart Leung, chair of developer Wheelock Properties and head of the Real Estate Developers Association of Hong Kong, warned that the situation could turn into a vicious cycle.
“If the economy doesn’t improve, the real estate sector won’t improve,” said Leung. “If home prices continue to fall, banks could start calling in homeowners’ mortgage loans, and if that happens it would threaten the stability of the entire economy.”
