Hong Kong residential property prices to rebound next year, though unsold inventory looms

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‘We expect Hong Kong home prices to be up 5 per cent in 2025,’ says Praveen Choudhary of Morgan Stanley

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The Pavilia Forest sale in Kowloon Bay. Photo: Dickson Lee

Salina Li

Published: 10:00am, 11 Nov 2024

Residential property prices in Hong Kong are set to rebound next year thanks in large part to lower interest rates, though a large cache of unsold inventory will keep a cap on gains.

“We expect Hong Kong home prices to be up 5 per cent in 2025,” said Praveen Choudhary, head of Asian gaming and lodging and Hong Kong real estate research at Morgan Stanley. “This is significant since it would be the first annual price increase in the last five years, during which time property prices have corrected by roughly 25 per cent.”

“The biggest driver for the price increase in 2025 will be the lower US [interest] rates.”

On Friday, the Hong Kong Monetary Authority (HKMA) lowered its base rate to 5 per cent from 5.25 per cent – the lowest point since February 2023 – following a quarter-point cut from the US Federal Reserve to 4.5 per cent. Subsequently, six major Hong Kong lenders reduced their prime lending rates for the second time this year, which trimmed borrowing costs to their lowest level in two years.

Morgan Stanley said by the middle of next year, mortgage rates will be lower than residential rental yields, resulting in a positive carry – making a profit by investing in assets using borrowed capital – the most important driver of a property price inflection.

The reduced rates of Hong Kong banks will lighten the burden on mortgage borrowers by about HK$709 to a monthly payment of HK$22,803, according to local mortgage broker mReferral, based on a typical HK$5 million (US$643,000), 30-year loan at prime rate minus 1.75 per cent.