JLL Real Estate and Investment Management Co. put out a baseline forecast of a -15% decline in Hong Kong’s housing prices for 2019. JLL’s caveat? A -15% decline in housing prices could become a -25% decline if the trade war between China and the US worsens.

Real estate is a closely watched, key indicator of Hong Kong’s broader economy. No wonder, as 7.4M people are packed into Hong Kong’s small, hilly islands and jagged peninsula in Southern China.

Real estate analysts in Hong Kong say that the housing market is already down approximately -2% since the market peaked in August 2018. The global financial firm UBS also shares a negative outlook of the Hong Kong housing market. UBS indicates that Hong Kong housing prices are the most overvalued in the world and are at the greatest risk of collapse.

CLSA, an award-winning capital markets and investment group established in Honk Kong in1986 that operates in Asia, Australia, Europe and the Americas, cites rising local interest rates, depreciation in the Chinese Yuan (currency) and concerns over economic outlook as being key problem areas for Hong Kong’s housing prices. A weaker Yuan against the US dollar makes Hong Kong property much less attractive to mainland Chinas buyers. Additionally, Hong Kong’s borrowing costs are pushing higher due to tightening by the US Federal Reserve.

Peter Churchouse, CEO of Hong Kong’s real estate investment firm Portwood Capital, said, “All the macro-factors are out there to weaken housing prices.” Churchouse anticipates housing prices in Hong Kong to decline 15% – 20% through the end of 2019. On the other hand, Churchouse believes Hong Kong is well able to take a decline…households are not highly leveraged, have low debt and high savings levels plus property developers and banks are “…all in good financial shape.”

Churchouse adds that since residential prices have tripled since the financial crisis in 2008-2010, even a -20% decline in prices would not be catastrophic.

“Of course, affordability likely would be much improved if there were a correction…so that could bring buyers back into the market, “ said Churchouse. “I don’t think there should be fundamental or systemic concern.”

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