Hong Kong home prices end 13-month upswing as mainland Chinese tax fears weigh on demand

Hong Kong's residential property prices dropped 0.46% in July, ending a 13-month increase, according to official data. The decline marks the first fall in 16 months, since April last year. Prices had been rising steadily since June, with the index for second-hand homes falling to 321.5 in July from 323 in June. Eddie Kwok, executive director at CBRE Hong Kong, noted that while residential property prices rose 7.3% year-to-date, further upside was limited in the short term.

The market may enter a consolidation phase in the coming months. Eddie Kwok also cited concerns about the impact of Beijing's crackdown on offshore wealth, particularly a 20% personal income tax on certain returns earned by mainland Chinese residents from Hong Kong insurance policies. If applied to property income, mainland demand for Hong Kong homes and commercial real estate could slow.

Mainland buyers, who accounted for 29% of home sales volumes and 37% of value in Hong Kong, were hopeful but uncertain about the retroactivity of global taxation for individuals. Karl Chan, JPMorgan Chase's head of Hong Kong property research, highlighted the uncertainty surrounding retroactivity, which could affect savings and cash flows of mainland Chinese individuals.

JLL Hong Kong chairman Joseph Tsang suggested that while the short-term impact of the new tax measures would be significant, their long-term effect on Hong Kong's residential market was limited.