(By Liang Yueqin)
The COVID-19 epidemic has hit all walks of life. Yau Coek-Man, the Hong Kong Real Estate Analyst of DBS Bank (Hong Kong), expressed in a conference call yesterday that the Hong Kong residential market has entered a downward cycle in the middle of last year due to the impact of Sino-US trade friction and local social movement, dragging down the property prices by about 6-7% in the second half of last year. The outbreak of the COVID-19 earlier this year further hits the economy and causes the financial market unsettled. The impact of the epidemic is more significant than that of social movement and the Sino-US trade war last year. The primary reasons are the decreasing of citizens' purchasing power due to the rising unemployment rate and financial market fluctuation and the suspending of sales activities in responding to the government's anti-epidemic measures that restrict the gathering of peoples. It is predicted that general residential property prices will fall 15% this year, which would be larger in the luxury property market if the epidemic situation improves in the third quarter.
The first-hand property transactions will be halved in the first quarter.
The government banned more than four people from gathering in public places, indirectly hitting property sales. He expected that there would be no first-hand property sales in the short term, and the first-hand property transactions would fall by more than 50% in the first quarter. He expected that the unemployment rate in Hong Kong would climb to 5% in the third quarter of this year. Developers can't chase for high prices this year, and the opening prices for the first-hand properties are expected to be more flexible. With the economic downturn, negative assets and cases of the abandoned mortgage have risen, but property prices will not crash like that in the financial tsunami. The possibility of a significant decline in property prices is low. Because strict measures in the property market suppress the speculation, and people with weak financial strength have difficulty buying properties, plus the supply of private housing in the next two to three years are not many, besides, there is support from low-interest-rate. He believed that the financial market is not as volatile as that in the fourth quarter of 2008, and predicted negative assets to rise slowly. But he said the situation is not as difficult as that in the previous two financial crises.
He said that the current decline in property prices of less than 10% does not provide sufficient reasons for the cancellation of strict measures. However, the government is believed to review it when the decline increases. He pointed out that the application for Land Sharing Scheme will begin this year, but its impact on the market is not significant since the scheme needs five to six years to release the value and use of agricultural land.
Retail rents may fall by more than 20%.
About retail and leasing, Yau Coek-Man pointed out that the retail market has not yet out of the trouble caused by social movements, and come across the COVID-19 epidemic at the same time. The local border restrictions are nearly closed. The number of tourists dropped by more than 90% in February. The decline of tourist consumers is much the same, causing the business of malls that rely mainly on tourists to be hit hard. Since many people were going out in one or two weeks last month, he had expected the retail figures to rebound from a historic low in February, when the decline was 44% yearly. But it was worse in April, and the estimated decline was similar to that in February. It is expected that retail rents will fall by 20% to 30% this year. The pressure of rent reduction will increase in the future when the landlord renews the lease.
He said that citizens decrease the outgoing due to the epidemic, and the impact of it is larger than that from social movements. Industries that had not been affected by social movements earlier, such as restaurants and tutorial schools, are now struck. Even the community shopping malls which are connected to the people's livelihood and had high resistance to decline during social movements are also affected. He pointed out that most owners have offered 30% to 50% rent relief for SME tenants since February. He believed that the developer 's share of rental income in the first half of the year would fall to near zero. However, he considered that the rent reduction has little help. The rent of some industries, such as restaurants, is not high. If there is no business, it is difficult to maintain cash flow even if the rent is reduced by half. Due to the uncertain prospects, many tenants turned to seek short-term leases when they renewed their contracts. It is expected that the vacancy rate of retail malls and street shops at the end of the second quarter may rise to a level near 10%.
