"Ken, I see that the transaction volume has increased a lot recently. Does this mean that the property market has bottomed out? Can I enter the market?" Last week, a friend who has been an accountant for ten years WhatsApped me, and his tone was full of expectation. I asked him back: "Have you seen some data? Is it a first-hand purchase and a second-hand purchase? Border area? The total price is determined by the price per square foot?" There was silence on the other end of the phone for a few seconds.
This scene plays out every day in the Hong Kong property market. In the first quarter of 2024, the transaction volume of the Hong Kong property market did increase by about 15-20% compared with the same period last year. Many media headlines stated "Transactions Pick Up" and "Buyers Enter the Market". But as an old expert who has been in the real estate industry for 15 years, I must tell you: Rising transaction volume and bottoming out property prices have never been an equal sign. In todayâs article, I will use data, examples and professional analysis to dismantle this myth that has plagued countless prospective buyers.
:::tip Expert tips Trading volume is an indicator of market activity, but it does not equate to price trends. To determine whether property prices have bottomed out, it is necessary to consider at least 5-8 market indicators, including mortgage ratios, supply levels, economic fundamentals, interest rate trends, and so on. :::
Core concept analysis: the true relationship between transaction volume and property prices
Three scenarios of rising trading volume
Many people think that rising transaction volume means that the property market is improving. In fact, this is an oversimplified understanding. Based on my many years of experience in observing the Hong Kong property market, there are three main scenarios when transaction volume increases:
Scenario 1: Panic Selling During the 2008 financial tsunami, Hong Kong property market transaction volume surged in certain months, but property prices fell by 20-30% at the same time. The reason is that owners panicked and lowered prices to sell, and buyers took advantage of the low price. This kind of "heavy volume decline" is definitely not a signal that property prices have bottomed out. Instead, it is a characteristic of the middle of a falling market.
Scenario 2: Short-term rebound under policy stimulus After the government relaxed mortgage loan-to-value ratios in October 2023, transaction volume did surge by about 25% from November to December. However, this kind of policy-driven transaction growth often only "releases pent-up demand" and does not necessarily mean that property prices have bottomed out. In fact, property prices were still in a downward trend at that time, but the decline narrowed.
Scenario Three: Real Market Recovery From mid-2009 to early 2010, the transaction volume of Hong Kong's property market continued to rise. At the same time, property prices recorded increases for six consecutive months, and many indicators such as mortgage application numbers, primary sales, and second-hand listings improved simultaneously. This is the real signal of market recovery.
:::highlight Key points Only looking at the rise and fall of trading volume is like judging a patient's condition by only checking their temperature. You need to 'do a blood test' and 'take an X-ray,' that is, combine multiple indicators to arrive at an accurate diagnosis. :::
The "quality" of trading volume is more important than the "quantity"
In the first quarter of 2024, although the overall transaction volume increased, if you take a closer look at the data, you will find the following phenomena:
- The average transaction price per square foot fell by 3-5%: Although buyers have entered the market, they have strong bargaining power, and the transaction price is generally lower than the asking price.
- Transactions are concentrated in small and medium-sized units: Units below 800 feet accounted for about 65% of the overall transactions, reflecting strong demand for "launch projects", but the luxury market is still weak
- Second-hand listings continue to remain high: Although transactions have increased, the number of new listings has also increased, showing the owner's mentality of "taking advantage of the rebound to ship"
These "qualitative" analyzes can better reflect the true market conditions than simple trading volume figures.
What does historical data tell us?
Let us review the past three Hong Kong property market cycles:
| Period | Transaction volume changes | Property price trends | Results | |------|-----------|---------|------| | 2003-2004 | Continuous rise for 6 months | Synchronous rise of 15% | Real bottom | | 2008-2009 | First rise, then fall and then rise again | V-shaped rebound | Mid-stage rebound | | 2015-2016 | Repeated fluctuations | Sideways consolidation | False breakthrough |
It can be seen from historical data that only when the transaction volume continues to increase for 4-6 months and is accompanied by an increase in property prices for 3 consecutive months, there is a greater chance that it is a real market bottom signal**.
Practical case sharing: three true stories
Case 1: Lessons from âFake Breakthroughâ in 2015
One of my clients, Raymond, saw a sharp increase in transaction volume in March 2015, and the media at that time reported that the "property market was recovering", so he rushed to buy a two-bedroom unit worth 6 million in Tseung Kwan O. The result? Property prices fell another 8% in the next six months, and his unit only returned to the purchase price in mid-2016.
Raymond's error:
- Only looking at trading volume, ignoring the fact that the U.S. interest rate hike cycle had just begun.
- Didnât pay attention to the simultaneous increase in second-hand listings (owners took advantage of the rebound to ship goods)
- Excessive belief in media headlines and lack of independent analysis
:::warning Guide to Avoiding Pitfalls Media reports often lag behind market changes and tend to report good news rather than bad. As a savvy buyer, you need to learn to analyze data yourself, rather than relying solely on news headlines to make decisions. :::
Case 2: âWisdom against the Marketâ during the 2020 Epidemic
For another client, Sarah, when the epidemic was at its peak from April to May 2020, her trading volume hit rock bottom. But instead of panicking, she analyzed carefully:
- Although Hong Kongâs unemployment rate is rising, the overall economic foundation is sound
- The government has launched multiple rounds of bailout measures and the banking system is stable
- Supply is limited, developers are cautious in launching projects
She entered the market in June 2020 when trading volume began to pick up, buying a 5 million unit in Tsing Yi. By mid-2021, the unit had appreciated approximately 12%.
Sarahâs Keys to Success:
- Not affected by short-term panic
- Analyze fundamentals rather than just looking at transaction numbers
- Enter the market when "volume is just starting to pick up" instead of waiting until "everyone is saying yes" before taking action
:::success Insider Tip The best time to enter the market is often at the stage when 'trading volume has just started to recover from a low level, but market sentiment is still cautious.' At this time, there is more room for negotiation, less competition, but the most fearful period has already passed. :::
Case 3: âPolicy Trapâ in 2023
After the government relaxed the mortgage ratio in October last year, one of my clients, Michael, took immediate action and bought a 7 million unit in Shatin, using up the 70% mortgage. His reason is that "the sharp rise in trading volume must have bottomed out."
But by March 2024, the market value of the unit had dropped to approximately 6.8 million, and his mortgage ratio had risen to 72% in disguise, approaching the bankâs risk line. Although there is no need to repay the mortgage for the time being, the psychological pressure is great.
Michaelâs Lessons:
- The increase in trading volume brought about by policy stimulus is often only a short-term phenomenon
- Exhausted the mortgage loan value to enter the market, lacking a safety margin
- Failure to consider the risk that "property prices may continue to fall"
Precautions and Risks: Five Common Misunderstandings
Misunderstanding 1: "Everyone is entering the market. If I don't enter, I will lose the bottom."
This is a typical "herd mentality". Remember, the property market is not the stock market and does not rise or fall by 10% in one day. Even if you enter the market a month or two late, as long as you choose the right property, your long-term returns will not be too far behind. On the contrary, if you make a hasty decision due to FOMO (Fear of Missing Out), buy the wrong property or buy it at an expensive price, you may suffer even greater losses.
Misunderstanding 2: "As transaction volume increases, banks will definitely approve mortgages."
The increase in transaction volume does not mean that banks are relaxing mortgage approvals. In the first quarter of 2024, although transaction volume rebounded, banks still have strict income screening and stress test requirements for borrowers. I have seen many cases where the buyer looked at the central flat, but ultimately had to cancel the order due to insufficient mortgage funding.
:::warning Mortgage Risk Warning Currently, banks generally require that under a stress test, mortgage payments do not exceed 50% of income. If your income is unstable (such as being self-employed or mainly commission-based), it will be more difficult to get mortgage approval. It is recommended to do a 'mortgage pre-approval' before entering the market to ensure financial capability. :::
Misunderstanding 3: "If property prices have dropped so much, they must be flat."
Hong Kong property prices have fallen overall by about 15-20% from the high in 2021 to now, but this does not mean that they have "levelled out." To judge whether the property price is reasonable, you need to compare:
- Rental Return: The current average residential rental return is about 2.5-3%, which is still lower than the time deposit interest rate
- Comparison of payment and rent: Based on a 70% mortgage and an interest rate of 4%, many units are "more expensive than rent"
- Economic Fundamentals: Hong Kongâs economic growth is slowing down, coupled with population outflow, the property market demand is under pressure
Misunderstanding 4: "Experts say the bottom must be the bottom"
Frankly speaking, no expert, including myself, can predict the housing market with 100% accuracy. The so-called "expert opinions" should be used as a reference rather than blindly followed. More importantly, you need to understand the expertsâ analytical logic and data sources and make your own judgment.
Misunderstanding 5: âYou must wait until the lowest price to buy a property.â
This is mission impossible. Even professional investors cannot accurately capture the lowest point in the market. A more practical approach is:
- Set your own "reasonable price" (based on affordability and property value)
- When the market price is close to your target price, enter the market in stages
- Donât wait indefinitely because âit may fall againâ and miss the right opportunity.
:::tip Professional advice Instead of spending time guessing 'when the bottom will be,' it is better to focus on 'buying the right property.' Choosing properties in good locations, with complete facilities and stable rental demand, will still benefit from Hong Kong's land scarcity in the long term, even if short-term property prices fluctuate. :::
Summary: Rational analysis, prudent decision-making
Back to the question at the beginning of the article: Does the increase in transaction volume mean that property prices have bottomed out? The answer is: Not necessarily, it needs to be judged based on multiple indicators.
As a buyer preparing to enter the market, you should pay attention to:
- Whether trading volume continues to rise for 4-6 months (not single-month data)
- Whether property prices rebound simultaneously (increase recorded for 3 consecutive months)
- Whether the number of mortgage applications has increased (reflecting real demand)
- Whether the second-hand listing volume has dropped (ownersâ willingness to ship goods has increased)
- Whether economic fundamentals have improved (employment, income, interest rate trends)
- Is the policy environment stable (to avoid short-term fluctuations in the "policy market")
The Hong Kong property market has never been a 'one-size-fits-all' market. Different regions and different types of properties may have completely different trends. Entry-level flats in urban Kowloon might have already reached the bottom; however, large units in remote areas of the New Territories may still have room to decline.
My three pieces of advice for prospective buyers:
- Do your homework: Don't just look at transaction volume; analyze transaction prices, price per square foot, mortgage data, rental yields, etc.
- Act within your means: Ensure contributions do not exceed 40% of your income, and set aside at least 6 months of emergency funds
- Long-term thinking: Buying property is a 5-10 year investment; don't let short-term fluctuations affect your decisions.
The property market goes up and down; this is a natural law. Rather than spending time guessing 'when it will bottom out,' it is better to focus on 'buying the right property,' 'buying what you can afford,' and 'being able to handle the mortgage.' Remember, the best time to enter the market is when you are ready, not when the market is at its busiest.
:::success Act immediately If you still have questions about the current property market trends, or want to learn more about home-buying strategies, mortgage arrangements, and area analysis, you are welcome to:
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Remember, buying a property is a major life event. The more preparation you have, the less risk you face. Let's work together to find the property plan that suits you best in this fluctuating market. :::
Recommended Further Reading:
- [2024 Complete Mortgage Guide] A Must-Read for First-Time Buyers: Loan-to-Value Ratio, Stress Test, Interest Rate Comparison
- [Regional Analysis] Kowloon vs New Territories: Which Area Is More Suitable for First-Time Home Buyers?
- [Investment Strategy] The Myth of Cheaper-than-Renting: Is Renting or Buying More Cost-Effective?