The market expects the current novel coronavirus - now officially named the COVID-19 by the World Health Organization - to have a greater negative impact on the Chinese and Hong Kong economies than that of the 2003 SARS epidemic.
If the COVID-19 outbreak cannot be controlled by the end of the first quarter, China’s Q1 GDP growth could be as low as 3.4% to 3.5%, according to Tao Wang, head of China Economic Research at UBS. Wang adds that the GDP growth of Hong Kong in Q1 could drop 6%.
“There will be a direct impact on the property market, one of the major sectors here [in Hong Kong], and there will be few measures the government can take to boost it,” says Patrick Wong, senior research analyst, Asia real estate, Bloomberg Intelligence. “The escalating coronavirus outbreak in Hong Kong may prompt developers to follow New World Development's decision to temporarily halt construction, which could weigh on project starts.”
New World is in the middle of a self-imposed, 14-day project construction halt that ends next week on February 17, Wong explains, adding that it may be possible for the developer to extend the hiatus if the virus outbreak intensifies, which would add even more pressure on a sector already hard-hit by Hong Kong’s prolonged political protests.
Although there is clearly pressure on the sector, the market is not expecting a slump in housing prices, according to Morningstar Investment Management Asia, which predicts that the impact on the property market will not linger long after the crisis, as was the case with SARS. During the SARS epidemic the home price index plunged 10% in the first eight months before rebounding dramatically over the rest of the year.
However, this time, housing prices are not likely to collapse. On the contrary, they might benefit to some extent from the COVID-19. “A dearth of private home completions may help Hong Kong avert a virus-induced plunge in housing prices and rents this year,” Wong suggests. “Just 13,700 private residential units were completed in Hong Kong in 2019, the fewest since 2015. This figure falls 33% short of the Rating and Valuation Department's previous estimate of 20,415 completions.”
Due to this limited supply and developers’ strong balance sheets, Wong feels that “major developers are unlikely to slash the prices of their new homes in the mass market”.