In my article “HK needs to think creatively to solve its housing problem” (Sept 4, 2018), I stated that Hong Kong’s property bubble will not burst in the near future unless it’s triggered by some unforeseen disaster. 

Property crashes occurred during the SARS outbreak in 2003 and the global financial crisis in 2008, but they were not precipitated by an overheated property market. 

The thesis I have been defending these last few years is that, even if property prices are extremely high — real estate prices in Hong Kong increased almost by 300 percent from 2003 to 2018, according to the Centa-City Index — there is liquidity in Hong Kong. Liquidity is beyond any doubt the main safety valve obviating a property bubble burst either in Hong Kong or on the mainland. In this case, what goes up may not necessarily come crashing down. 

However, this “unforeseen disaster” that could trigger a property market crash should have arrived, according to some people, in the last seven months of social unrest. The fact is that Hong Kong’s real estate market has been relatively resilient compared with other sectors, such as tourism and the retail business. Many elements suggest that Hong Kong´s property bubble will not burst even if protests continue. The prices will just keep dropping, but there will be no cataclysmic event.

But the unrest has triggered the first recession in a decade. According to the Hong Kong Tourism Board, there were 2.65 million arrivals in November 2019, a decline of 55.9 percent from the same month in 2018, affecting particularly visitors from the mainland, which registered a drop of 58.4 percent. And there has been a loss of international events and conferences, along with an undeniable reputational damage as one of the world’s safest cities.

Hong Kong property prices have not fallen, and quite likely, will not fall, by a quantum leap that is commensurate with the growing political uncertainty. Prices may keep going down in 2020, but they will rebound quickly once the social unrest dissipates

Landlords are now forced to cut rents because, if they do not, some SMEs would be forced to close down their businesses. Hong Kong recorded its biggest retail slump on record in October, when sales contracted 24.3 percent to HK$30.1 billion (US$3.9 billion), according to data provided by the government. And not even the Christmas shopping season could ease the massive sales drop of 23.6 percent year-on-year to HK$30.0 billion in November, according to data from the Census and Statistics Department. Sales of luxury goods were hit hardest, plunging by 43.5 percent.

As per data shown by the government on Nov 29, property prices in October dropped 1.3 percent compared with a revised fall of 1.7 percent in September. And, judging by the social and market situation, the price index would have also declined in November and December, and will continue to drop after January.

In the past seven months, property transactions across the market had dropped sharply. Between March and May, monthly transactions averaged 7,410, according to Land Registry data compiled by local real estate agent Midland Realty. Between June and August, the average number of transactions was 4,649, a drop of 37 percent, and, between May and November, prices fell about 3.4 percent.

Many in the market are prepared to sell at a discount, with many expats eager to relocate to escape the unprecedented social turmoil.

Nevertheless, we must not let pessimism and chilling data get us down. It’s true that Hong Kong´s property market is suffering, and prices are dropping, but, as of today, the sector is just shrinking.

Besides, the crisis may bring new opportunities with new retail entrants taking advantage of the economic downturn. Since many big chains and some luxury brands are giving up leases and landlords are forced to lower rents, new businesses will enter the market, replacing the old ones, something that is only possible in a vibrant economy like Hong Kong. In other economies, old businesses will simply disappear without being replaced.

Acknowledging that high housing cost is one of the causes of the protests, mortgage requirements were relaxed by the government in October for first-time buyers, allowing them to borrow up to 90 percent of the value of a property worth up to HK$8 million, as well as a lending rate cap. These two measures helped restore purchasing power in the housing market in November.

It will take more than a few months of street protests to burst Hong Kong’s property bubble. Prices have been rising steadily for 15 years and, given the quite unique system of landholding in Hong Kong — the government controls land sales — land supply is tightly controlled. It is a much more controlled system when compared to other property systems in other economies.

To sum up, Hong Kong property prices have not fallen, and quite likely, will not fall, by a quantum leap that is commensurate with the growing political uncertainty. Prices may keep going down in 2020, but they will rebound quickly once the social unrest dissipates.

Despite its current challenges, Hong Kong´s housing market is holding firm as it has proved to be quite resilient. There are many reasons to believe it will stay that way.

The author holds a doctorate in Hong Kong realestate law and economics. He has worked as a business analyst for a Hong Kong publicly listed company.

The views do not necessarily reflect those of China Daily.