Residential property prices to fall up to 10% lower in 2023: S&P

The office property market’s vacancy rate is also not expected to improve.

The prices of Hong Kong’s residential properties is expected to fall a further 5% up to 10% in 2023 from its peak in 2021, reports S&P Global Ratings. 

Overall, however, the residential market is expected to remain resilient despite softening economic conditions, and with supply shortages propping up sales, the ratings agency said.

"We view fallout in Hong Kong's residential property market as cyclical, given the underlying demand and supply dynamics," said S&P Global Ratings credit analyst Edward Chan.

Chan notes that rated developers remain bolstered against the ongoing downturn. "Stabilizing residential prices driven by economic recovery, as well as prudently managed land investment, capital expenditure, and debt level over the next 12 months would be the mitigating factors," Chan said.

However, should soft economic conditions persist longer, the downturn in the residential property is likely to bleed past 2023 and up until 2024.

Unlike the residential property market, office properties face risk of oversupply.  S&P does not expect landlords under its watch to see meaningful rental income growth until the border between Hong Kong and mainland China fully reopens.

“We expect that new office leases will be signed at rents 5% to 10% lower than expiring leases in 2023,” said S&P Global Ratings credit analyst Wilson Ling.

The overall office vacancy rate in Hong Kong has stayed above 10% over the past 18 months, higher than the 4.5% during 2015-2019. 

The vacancy rate is not expected to improve over the next 12 months as a new grade-A supply set is expected to to reach more than 5 million sqft in 2022-2023, according to data from the Rating and Valuation Department. This is five times higher than the 1 million sqft supply available in 2020-2021.