Hong Kong's private home market experienced a notable downturn in May, with prices declining by 1.2% from April as the city grapples with a surplus of unsold properties and cautious buyer sentiment. The latest official data underscored a reversal from consecutive months of modest gains earlier this year, with April's previously reported 0.5% increase now revised.

The dip comes on the heels of Hong Kong's decision in late February to lift all purchase curbs, including additional stamp duties for foreign and second-home buyers, and penalties for quick resale of properties. These measures were implemented amidst a 20% drop from 2021 peak prices, driven by higher mortgage rates, an exodus of skilled workers, and a pessimistic economic outlook.

Initially, the market responded positively to the policy rollback, witnessing a surge in transactions. However, the momentum was short-lived as developers aggressively discounted new flats to stimulate sales, contributing to the month-on-month price decline.

Despite the recent softening, Hong Kong maintains its notorious status as the world's least affordable city for housing, according to the latest survey by Demographia, marking the fourteenth consecutive year at the top of this dubious list. Analysts predict that unless local banks reduce interest rates, which remain relatively high, the downward pressure on home prices is likely to persist.

Looking ahead, Hong Kong anticipates a record-high supply of new private homes this year, following a glut of unsold inventory in 2023. Property consultancy Knight Frank forecasts a further 5% drop in prices for 2024, noting that until the excess supply diminishes, a robust recovery in prices is unlikely.

Echoing this sentiment, S&P also projects a continued decline of 5% to 10% in home prices this year, attributing it to the oversupply situation and prevailing interest rate conditions.

In conclusion, while Hong Kong's property market adjusts to recent policy shifts and supply dynamics, the path to recovery appears contingent on addressing the surplus inventory and achieving more favorable financing conditions.