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Luxury homesPCYour browser does not support the element. high on the Peak, a verdant mountain towering over Hong Kong, have long been above the cares and concerns of the rest of the city: residents look down from sprawling mansions onto the dense knot of tower blocks in which most people live. But recent property woes have brought even the loftiest areas down to Earth. The family of one indebted property investor sold eight swanky Peak properties between July and October for around half the price they might have fetched a couple of years ago.Hong Kong, long defined by sky-high property prices, has been experiencing a vicious slump. Home prices have fallen by over a quarter since late 2021. In September they reached their lowest level in eight years; the number of unsold homes had already hit a two-decade high. Commercial property is in trouble, too. Office vacancy rates are at a 25-year high. Rental prices have fallen by 40% from a peak in 2019, according to Savills, a property firm.Some of Hong Kong’s problems are global in nature, namely interest-rate rises and more people working from home. Starting in mid-2022 lenders raised rates five times, to their highest since 2008. Hybrid working has clobbered the office market. Last year w, a consultancy, found that 76% of employees in Hong Kong were working partly from home—well above the 59% average for the Asia-Pacific region.Many of the slump’s other causes are unique to Hong Kong. The mainland’s economic malaise has weighed on the market, and the yuan’s depreciation against the American dollar—to which the Hong Kong dollar is pegged—has made local property pricier for Chinese buyers. Firms have struggled to recover from the territory’s long and strict covid-19 restrictions. And scores of multinational companies have scaled back local operations amid geopolitical tensions. There are fewer chief executives to buy palatial homes on the Peak.The government has tweaked the rules in an effort to shore up the market. In February it removed extra stamp duty for foreign and second-home buyers, but prices began falling again after just two months. Interest-rate cuts—the first in four years—and the relaxation of the maximum allowed loan-to-value ratio appear to have had more impact: the number of home purchases reached 4,697 in October, more than double the number a year earlier. Home prices also increased month-on-month, for the first time since April.It would, however, take many more months of good news to clear the city’s property glut. A peaky property market is particularly problematic for Hong Kong’s government, which relies heavily on revenue from land sales to fund its low-tax system. The government has said it will try to boost its coffers by issuing close to HK$96bn ($12bn) in debt this year—the most in a quarter of a century.Worryingly, there are signs that this crisis is structural, not cyclical. Hong Kong faces doubt over its future. Draconian national-security laws and a lack of clarity about the city’s role within, rather than alongside, China’s economy have harmed its image overseas. Some of Hong Kong’s pillar industries have been wobbly. Funds raised on its stockmarkets in the first nine months of this year were less than 30% of the amount raised in the same period of 2018. The workforce has shrunk by almost 200,000 in recent years, a big fall in a city of 7.5m. Hong Kong contends with one of the world’s lowest fertility rates, and by 2040 a third of its population will be aged 65 or older. The government has tried to plug the gap with mainland talent, introducing visa schemes. With luck, some of the talented mainlanders will have a taste for swanky mountaintop homes.
