Thriving stock market cushions the luxury housing price fall

HONG KONG, 04 March 2021 – On the back of the Hang Seng Index hitting the 30,000-point level for the first time since May 2019, the rate of decline of luxury residential is expected to moderate in 2021 from 2020 based on the high correlations with luxury residential price movement, according to JLL's Hong Kong Residential Market Monitor, released today.

Data from JLL show the movement of the Hang Seng Index reflected a high correlation with the luxury residential price movement since 1997, with a correlation coefficient of 0.9. During major crises over the past two decades, namely the Asian Financial Crisis in 1997, the Dotcom bubble and SARS from 2000-2003, and the Global Financial Crisis in 2008, when the HSI corrected by 60%, 54% and 64% respectively, luxury residential prices followed suit to adjust by 56%, 22% and 24% respectively, generally with a lag of six months.

Norry Lee, Senior Director of Projects Strategy and Consultancy Department at JLL in Hong Kong, said: "Since January 2018, the HSI corrected by 35% before the recent sharp pick up and the luxury residential price dropped by 10% after a six-month time lag. Unless the HSI spikes significantly higher, we forecast the luxury residential segment will likely be under some pressure in the near term, albeit the rate of decline will moderate from 2020."

Another financial indicator that is closely correlated to residential price movement is the rate of change in money supply M1 in Hong Kong, featuring a correlation coefficient of 0.7 with a six-month lag. Change in money supply has long been considered a key factor in driving macroeconomic performance and business cycles. As the most liquid portions of the money supply, an increase in M1 tends to have a stimulating effect on spending and investment. In turn, property as an investment asset is often a destination of fund flows. As such, the trend in money supply can provide us some insight about the trend in residential prices.

Nelson Wong, Head of Research at JLL in Greater China, said: "Notwithstanding the statistical relationship, it is worth noting that residential price trends are still subject to Hong Kong's broader economic performance and external events such as the pandemic. Also, with a high level of luxury residential supply, prices will still be under pressure in the coming years."

Source: Hang Seng Indexes Company Limited, JLL

Sources: HKMA, JLL