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The company downsizing and redundancy plans are largely confined to the banking and finance sector. However, it will not be a surprise to see them filter down to other trades, including import/export and retail/wholesale. The labour market will be affected and it will push back housing commitments, according to Jones Lang LaSalle’s latest Hong Kong Economic Insight.
Many private sector economists forecast Hong Kong’s unemployment rate to climb back to the 5% level, a very conservative estimate compared with the record-high 8.8% seen in mid-2003. The potential shift in unemployment pattern is the one thing that will make the situation even worse than the last economic trough and will have an even bigger implication on Hong Kong’s consumption and investment markets.
The latest breakdown of unemployment statistics only paints the picture up to October 2008, when the recent deterioration in labour market conditions is not yet reflected. However, unemployment rates for higher-income groups have already edged up from a range of 1–1.8% at end-2007 to a range of 1.1–2.2%. The FIREBS sector also saw its unemployment rate trending up from 2% in December 2007 to 2.2% in September 2008.
The current financial market turmoil will push Hong Kong’s unemployment rates higher, particularly those for higher-income groups working for the FIREBS sector. The trading sector is also expected to be seriously affected, given the shrinking global demand pie and the slowdown in China’s external trade.
Indeed, the strong inverse relationship between unemployment and the residential prices in Hong Kong is pointing to almost a certain fall in capital values in 2009. However, if incomes will be reduced (in the case of a salary cut) or approach zero (in the case of redundancy), the affordability ratio for individual households could see a rapid turnaround.
Now, a cautious or risk-adverse buyer will see this as a big excuse to temporarily walk away from the sales market and wait for buying opportunities when property prices see even larger discounts and the labour market becomes more promising.
‘It is true that many of Hong Kong’s real estate market fundamentals remain sound, and we hold our long-term optimistic view on the territory’s residential market in light of the structural reasons. However, the short-term outlook will unavoidably be clouded by the prevailing global credit crunch, and more importantly, by the rising concern over the territory’s labour market conditions in general,’ remarked Marcos Chan, Jones Lang LaSalle’s Head of Research, Greater Pearl River Delta.
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