Affected by both the Hong Kong government's "double stamp duty" regulatory measures and the gradual exit of the U.S. quantitative easing monetary policy, some major Hong Kong developers, represented by Cheung Kong Holdings and Sun Hung Kai Properties, have recently begun substantial price cuts, which may signal the beginning of a bear market in Hong Kong's property market. Although the mainland property market is less market-oriented than Hong Kong's, the bearish signs in Hong Kong's property market will inevitably affect market expectations on the mainland, and the fundamental factors affecting Hong Kong's property market will likewise affect the mainland. The mainland property market may find it difficult to remain insulated.

The relative decline in rental yields is the internal driver of a possible bear market in Hong Kong's property market. The root cause of the sustained rise in Hong Kong housing prices in this cycle lies in the introduction of the U.S. quantitative easing monetary policy. Because Hong Kong operates a linked exchange rate system, under an ultra-low interest rate monetary environment, large amounts of hot money flowed into Hong Kong, gradually pushing up Hong Kong housing prices. At that time, Hong Kong's personal mortgage rate was only about 2.2%, while rental yields exceeded 3%, thus supporting continuous high-level housing price increases. According to Bank of America Merrill Lynch research, Hong Kong property rental yields are closely related to the 10-year U.S. Treasury yield, and both currently stand at 2.8%. However, with the exit of U.S. QE, the 10-year U.S. Treasury yield will rise to 4%. Assuming rents remain unchanged, current Hong Kong housing prices would need to fall by at least 24% for rental yields to align with U.S. Treasury yields. In addition, the Hong Kong SAR government's announcement of an extra buyer's stamp duty on home purchases by non-permanent residents and the "double stamp duty" regulatory policy implementing differentiated stamp duty rates based on total transaction prices will significantly reduce housing liquidity and continuously hit local property market demand and sentiment. Cheung Kong Holdings' recent 25% price cut on new projects and Sun Hung Kai Properties' 40% direct price cut on new projects during the Spring Festival may, to some extent, reflect market concerns about the development prospects of Hong Kong's property market.

After a bear market emerges in Hong Kong's property market, the mainland property market may not be spared. The economic ties between Hong Kong and the mainland have become increasingly close. If Hong Kong's property market turns bearish, it will quickly spread to the mainland and reverse the previously strong expectations of housing price increases in the property market. Although the operating rules of the mainland property market differ considerably from those of Hong Kong, both are decisively influenced by investment returns. In the past, the irrational prosperity of the mainland property market was mainly due to excessively high housing investment returns under a low interest rate environment. As the central level of money market interest rates in China has moved upward, housing investment returns on the mainland have already declined significantly.

Taking the first-tier city of Beijing as an example, the home price-to-rent ratio far exceeds 1:500, and the converted rental yield is less than 2%, far below the one-year RMB benchmark deposit rate. Of course, investors may also hope to sell housing to obtain higher returns, and Beijing housing prices recorded an increase of nearly 20% in the past year. But if individual selling behavior evolves into group action, it will directly lead to a crash in Beijing's property market. It should be noted that with the concentrated release of market demand over the past year and a half, even in first-tier cities, end-user housing demand has already shrunk. Recently, observations have found that after the Spring Festival holiday, Beijing rents have shown an unusually stable trend, without the obvious increases seen in the past, indicating that the housing supply-demand relationship may not be as tight as reflected by the sharp rise in housing prices. Nationwide, the property market has already shown obvious regional divergence. Housing bubbles in third- and fourth-tier cities face bursting, and the related effects will spread to first- and second-tier cities through funding chains and psychological expectations. It can be expected that after the Spring Festival, the number of listings for sale in the housing market will increase significantly. Looking at all aspects, the golden period of China's real estate industry development over the past decade or more may be coming to an end.

It should be noted that due to excessive use of leverage in China's real estate industry, the main risks of property market fluctuations are not primarily borne by real estate development enterprises, which to some extent has encouraged risk-taking tendencies among some enterprises. The behavior of some real estate development enterprises buying land at high prices against the market trend in January this year requires high vigilance. Fundamentally, due to reversed expectations, tighter funding conditions, shrinking end-user demand, and declining investment returns, the mainland property market may closely follow Hong Kong's property market adjustment pace and usher in a bear market.