Debt Servicing Ratio and Policy Easing Cycle Impacting Hong Kong Home Prices and Rents

Debt Servicing Ratio and Policy Easing Cycle in Hong Kong

Hong Kong's debt servicing ratio adjustments are contributing to a fresh policy easing cycle in the residential property market. Recent data reveals that home prices have decreased by about 1.7% in September, reaching levels not seen since 2016. This slide marks five consecutive months of declining prices, reflecting a 12.5% drop over the past year, according to the Rating and Valuation Department.

Rising Rents Amidst Falling Home Prices

While home prices are retracting, home rents are witnessing a modest increase, climbing by 0.1% month-on-month and 5.8% year-on-year. The current index for rents stands at 196, nearing the peak recorded in September 2019. Following the Hong Kong Monetary Authority's rate cut on September 19, various accommodative measures have been introduced, including an increase in the debt servicing ratio to 50% from 40% for all properties. This shift is aimed at easing pressure on borrowers and is anticipated to stabilize residential prices.

Industry Perspectives

Eddie Kwok, executive director at CBRE Hong Kong, remarked, “The government’s focus on relaxing loan-to-value ratios for property mortgage loans is critical in stabilizing residential prices. We may see these prices bottoming out soon.” Furthermore, the government's initiative to attract talent is expected to maintain an upward trajectory in rental growth, with predictions of increased demand in the medium term.

Looking Ahead

The interplay between debt servicing ratios and policy easing cycles in the Hong Kong property market presents a unique landscape for investors. As the market absorbs these changes, stakeholders should remain alert to ongoing developments.