Morgan Stanley Forecast Expects Further Decline in HK Property Market

Morgan Stanley has revised its optimistic outlook for Hong Kong’s residential property market, now projecting additional annual declines.

In a research note, analysts Praveen Choudhary and Jeffrey Mak stated that the bank expects home prices in the Asian financial hub to fall by 3% in 2023, in contrast to their previous forecast of an 8% increase. This follows a significant 16% decline in 2022, as reported by the bank.

Furthermore, Morgan Stanley predicts a further decrease of 5% to 10% in average selling prices for 2024. The bank attributes these downward trends to stretched affordability, an increase in land supply, negative rental carry (where costs exceed income), and a weakening sentiment, especially influenced by the equity market heading for its fourth consecutive annual decline.

Bloomberg Intelligence has also warned that if prices continue to fall next year, the percentage of Hong Kong mortgage loans exceeding the property’s value is likely to reach its highest level since 2005.

Rising interest rates have already had a negative impact on Hong Kong’s housing market. According to data from Centaline Property Agency Ltd., used-property values have fallen by 18% from their peak in 2021.

Morgan Stanley’s perspective on the Hong Kong real estate market has shifted from ‘attractive’ to ‘in-line’ due to the sector facing higher interest rates from the United States and slower growth from China. As a result, the bank has reduced its price targets for local property developers by an average of 19%.

Considering the revised outlook, Morgan Stanley downgraded Wharf Holding Ltd. To underweight from overweight, citing a challenging operating outlook across its major business segments. The bank now favours CK Asset Holding Ltd., Sun Hung Kai Properties Ltd., and Sino Land Co.

These developments indicate a cautious stance on Hong Kong’s property market, with Morgan Stanely anticipating further declines amidst various economic challenges and market conditions.