As July 1 approaches, the central government's restrictions on funds flowing into Hong Kong for stock speculation and insurance purchases have entered the implementation phase. Although the measures have not yet taken full effect, expectations alone have already sent shockwaves through Hong Kong's financial and property markets, pushing overall sentiment to a new low.
Capital markets were the first to feel the impact. In recent weeks, the Hang Seng Index has kept falling under policy pressure and has now dropped below 24,000 points. The wave of panic selling soon spread to the property market, which is closely tied to capital flows. Although the new rules do not directly target property investment, the resulting liquidity squeeze has brought the market close to a standstill. The ten major housing estates, often seen as a gauge of market sentiment, were among the first to see secondary transactions fall sharply, with buying and selling activity nearly frozen.
Without mainland capital support, the luxury housing market—once driven by transactions exceeding HK$100 million—has been hit hardest, with deals virtually disappearing. A striking default case emerged this Tuesday: a ground-floor garden unit at “Mont 
Verra”, a prime luxury development in Kowloon, was brought by a mainland buyer in 2024 for HK$180 million but later abandoned. The buyer forfeited HK$54 million in deposits and other payments rather than complete the transaction. This large default highlights the severe impact of blocked capital flows on the luxury housing market, and similar cases are expected to surface as liquidity tightens further.
The secondary residential market has also come under pressure. As homeowners and investors face growing cash-flow strains, banks are increasingly auctioning mortgage-backed properties at discounted prices. In a recent transaction in So Kwun Wat involving a small mortgage-backed unit, the sale price fell by 50% from the original purchase price, signaling the start of banks' strategy to offload such properties at almost any price.
Amid the sharp market downturn, developers have largely taken a wait-and-see approach, delaying new project launches and leaving the primary market at a standstill. The secondary market has also frozen, as buyers pull back from the market and owners hesitate to cut prices. These signs suggest that Hong Kong's property market staging minor rebound was fueled by mainland purchasing power over the past year, has come to an end. With new capital-flow regulations adding further pressure, the market is entering a prolonged and uncertain adjustment period.
