Introduction

As of March 31, 2025, the real estate market in Hong Kong finds itself trapped in a relentless slump, with recent data from the Rating and Valuation Department revealing a troubling 0.87% drop in the private residential price index in February. This marks the lowest level seen in over eight years, sending shockwaves across the financial landscape.

Economist's Warning

Leading economist Dr. Yip Sau-leung from the Chinese University of Hong Kong has raised the alarm, forecasting that property prices could plummet by an eye-watering 60% to 75% as the long-predictable real estate bubble bursts.

Financial Stability Concerns

Dr. Yip warned of a potential repeat of the negative equity crisis, reminiscent of the turmoil witnessed in earlier market downturns. He asserted that it is critical to ensure the stability of financial institutions, urging the Hong Kong Monetary Authority to conduct stress tests on banks to safeguard against wider economic fallout.

Proposed Housing Solutions

To address ongoing housing challenges, he proposes a focus on the development of "sandwich-class" housing—properties priced between public and private housing—aiming not only to enhance living quality for residents but also to alleviate fiscal deficits and promote social stability.

Market Decline and Economic Implications

According to Dr. Yip, the market has already suffered a cumulative decline of 30% to 40%. However, the projected downturn could lead to a vicious cycle of increasing unemployment, business closures, and mass layoffs, compelling many to sell their homes at significant losses. This poses substantial risks to banks, drawing parallels to other regions grappling with collapsed real estate sectors.

Price Corrections

Highlighting the dramatic price increases of 250% in the past, Dr. Yip suggested that a correction may typically span 45% to 50%. But he contends that the upcoming reality could be even harsher, potentially reaching the 60% to 75% threshold. The secondary market is already witnessing steep price reductions as financially-strapped developers accelerate price cuts.

Urgent Action Needed

To mitigate the impact of this economic downturn, Dr. Yip emphasizes the urgency of preventing a hard landing for the economy. He urges the government to fast-track the construction of sandwich-class housing, accompanied by comprehensive financial assessments to evaluate potential revenue streams that could ease budget shortfalls.

Potential for Improvement

Interestingly, Dr. Yip believes that Hong Kong has the potential to outperform Singapore by implementing the Sandwich Class Housing Scheme (SCHS). According to him, citizens may prefer investing in better-quality sandwich-class homes priced around HK$2.8 million over settling for public housing at HK$1.8 million, as the former not only offers improved living conditions but also elevates social status.

Conclusion

As observers keenly watch the unfolding crisis, it's clear that the stakes are incredibly high. Will the Hong Kong government respond in time to stabilize the market and protect its citizens? Only time will tell, but one thing is for certain: the coming months will be critical for all stakeholders involved in this precarious property landscape.