According to data released by the Rating and Valuation Department at the end of last month, the private domestic price index for Hong Kong reached 298.6 points in December, marking a slight increase of 0.23% from the previous month. This represents the seventh consecutive monthly rise. For the full year, the index increased by 3.25%. Various real estate agencies and consultancies have also issued forecasts for Hong Kong's property prices this year.
Ms. Tang Shuxian, Executive Director and Head of Hong Kong Research at Cushman & Wakefield, stated that the increase in Hong Kong property prices is closely linked to transaction volumes. The number of primary and secondary residential transactions averaged over 5,000 per month from March to December last year, sustaining this level for ten consecutive months. She indicated that if this transaction volume can be maintained above an average of 5,000 per month, it should theoretically support further growth in overall property prices.
Ms. Tang added that the active Hong Kong IPO market and the local stock market's cumulative rise of over 25% last year have created a wealth effect, encouraging potential buyers to enter the property market. She also pointed out that with current bank deposit returns being relatively low compared to the residential property market, some investors looking to purchase properties for rental income are preparing to make their move. She expressed confidence that both transaction volumes and prices for Hong Kong properties will improve this year, with an estimated full-year price increase of approximately 5%.
Regarding the recent nomination by former US President Donald Trump of a former Federal Reserve governor to replace Jerome Powell as the next Fed Chair, market participants widely view the nominee as a hawkish figure on monetary policy. This development has led to a sharp decline in investor expectations for significant future interest rate cuts by the Fed. Ms. Tang believes the short-term impact of this nomination is increased market uncertainty. Whether the nominee will adopt a dovish or hawkish stance will depend on the policies implemented after taking office. However, based on the former president's track record, appointees typically align with his views, so the extent to which the Fed's rate-cutting pace might exceed previous market expectations will require further observation. Should this occur, it could be a positive signal for the Hong Kong property market.
Nevertheless, Ms. Tang noted that the future direction of interest rates may not have as significant an impact on Hong Kong's property market as in previous years. She explained that although interest rate cuts last year were not substantial, the Hong Kong property market still experienced a rebound, with annual transactions exceeding 60,000 units. Contributing factors included economic conditions, positive developments in the stock market, a growing number of foreign professionals, and increased housing demand from non-local students, all of which supported growth in rents and prices and bolstered the overall market.
Major financial institutions generally anticipate the US Federal Reserve will cut interest rates one to two times this year, with each cut potentially being 0.25%, resulting in a total reduction of up to 0.5% for the year. Ms. Tang highlighted that during previous rate-cutting cycles, Hong Kong banks did not always follow the Fed's moves immediately. Therefore, even if the US begins cutting rates in the coming year, it remains uncertain whether Hong Kong banks will follow suit promptly. Consequently, the interest rate trend for this year is still expected to be in a downward cycle, but the magnitude of cuts may be less pronounced than in the past two years.
Ms. Tang also mentioned that the number of residential mortgage loans in negative equity is highly correlated with Hong Kong property prices. When property prices show stable growth, the number of negative equity cases correspondingly decreases. Given the favorable environment for the property market and prices, she anticipates that the number of negative equity residential mortgages in Hong Kong will continue to decline this year.
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