Hong Kong, the home to some of the most expensive real estate in the world, is set to see the other side of this coin in 2019 with property firms predicting a massive 25 percent plunge in housing prices.
Global real estate company JLL said Hong Kong housing prices face a potential slump ranging from a 15 percent baseline to a jump of as much as 25 percent next year because of Trump's trade war against China.
JLL's forecast is the latest bearish call, and one of the most alarming, for a real estate market that's traditionally been one of the world's most expensive.
JLL said Hong Kong's market is entering a "correction phase." Because of this, prices have the potential to plummet further, predicts JLL. The firm cited the trade war between China and the U.S. as among the key factors hurting business confidence in the city. The trade war has been bad for business. It helped contribute to a more than 20 percent drop in the Hong Kong stock market since the market peaked in January.
All of Hong Kong's property sectors have become reliant on demand from China to underpin growth in recent years, said JLL executive director Joseph Tsang. A long-running U.S.-China trade war will have the potential to affect Hong Kong's economy and property market.
Other real estate analysts concur prices have already fallen by some two percent since the market peaked in August. Swiss multinational investment bank UBS Group AG said recently said housing prices in Hong Kong are the most overvalued and at the greatest risk of collapse.
France-based capital markets and investment group CLSA Ltd said in August it expected a 15 percent fall in real estate prices over the next 12 months. It's retained this outlook in a report last month.
Analysts noted a weaker yuan against the U.S. dollar makes Hong Kong property less attractive to mainland Chinese buyers. The Hong Kong dollar is pegged to the dollar in a narrow band and therefore tracks the dollar's movements.
A weaker yuan or renminbi also pushes Hong Kong borrowing costs higher. This unfavorable outcome is due to a slackening-off on monetary easing by the U.S. Federal Reserve, which has kept raising its key interest rate to avoid overheating in the U.S. economy, the world's largest.
Hong Kong, however, seems capable of coping with weaker property prices. For one, property developers and banks are in good enough financial shape. Banks and property developers are not highly leveraged while households have low debt and high savings levels.
