Residential property deals in its lowest since 2009

What stands out? Residential property transactions have recently fallen off the cliff. Monthly transactions amounted to only 6,000-7,000 in July and August, the lowest since 1Q2009. This is almost 50% lower than the average monthly volume seen in 2009 and 2010. As transaction typically leads price movement by a quarter, is the sharp pull back in volume a precursor to a long overdue property price correction?

The deteriorating macro outlook suggests that this could well be the case. Given heightened uncertainty in the global economy and continued financial market turbulence, the risk of recession is rising in Hong Kong. These concerns drove our downgrade of Hong Kong’s 2012 growth to well below consensus at 3.3%y/y in August.

Yes, the labour market remained strong, for now, with the unemployment rate recently easing to only 3.2%; but this is already history. The labour market typically lags the economy by around 2-3 quarters. If our view of a sharp slowdown does pan out, Hong Kong’s unemployment rate will likely edge up, at least, to the 4-5 % range in 2012. Potential labour market deterioration, plus the dampening effects of falling equity prices on consumer wealth and confidence, should crimp cyclical demand for property, in our view.