Investors wait for rebound
Financial instability in many of the world's leading economies, rising mortgage rates and volatile stock markets have spooked Hong Kong property investors, who have adopted a wait-and-see attitude.
While opinions of analysts vary, most predict the price of Hong Kong residential property will fall by 5-10 per cent over the coming months.
'With so much unpredictability around at the moment, the majority of investors are unwilling to commit themselves to making property purchases,' says Thomas Lam, Knight Frank director and head of research for Greater China.
Lam says economic uncertainties in the financial markets, rising mortgage rates and government measures to cool the Hong Kong property market are reflected in a drop-off in property sales. Weekly home sales dropped to a six-year low during the second week of November. Despite the slump, Lam says cash-rich investors are still interested in primary and luxury residential properties where they can expect to receive a stable rental yield of about 4 per cent.
Lam expects rental returns on primary and luxury residential properties to remain steady. Meanwhile, depending on location, rental yields in the secondary market could decline 5 to 10 per cent. He also expects office rents to drop by about 10 per cent. 'Without any further economic disasters, I think we will only see a mild correction in office rents,' says Lam.
To avoid paying extra stamp duty on the early resale of properties, Lam says investors are also turning their attention to commercial property. 'We see quite a bit of interest in Tsim Sha Tsui East commercial properties, but opportunities are limited because most properties remain in the hands of the developers or owners,' he says.
Introduced by the government in an attempt to deter speculators looking to turn a quick profit, an extra 15 per cent stamp duty is levied on homes resold within six months of purchase, 10 per cent on homes resold within a year and 5 per cent on properties resold within two years.
Lam says Hong Kong investors are also looking beyond the local market and joining a lengthening line of wealthy foreigners buying property in London. 'Hong Kong investors are only interested in London properties in prime districts,' says Lam. 'London is the main focus. Investors do not seem to be all that interested in the United States or Australia.'
In Macau, investors are mainly interested in new properties. 'With new hotels and entertainment attractions in the pipeline attracting more people to Macau, investors are looking at potential rental returns,' says Lam. According to Macau property agencies, the market has undergone continuous double-digit growth since 2004, while luxury condominium prices have enjoyed more than 100 per cent growth.
As in Hong Kong, Macau property prices have been experiencing a downturn since the summer. Fong Chi-keong, president of the Macau Association of Contractors and Developers, told the media recently that property prices may fall by 30 to 40 per cent in a downturn that could last for more than a year.
Kent Fong, Cushman & Wakefield senior director of investment services, expects uncertainties in the financial markets and rising mortgage rates to continue to affect the market. 'Negative sentiments have prompted property investors to put their plans on hold,' says Fong. 'We expect investors, including those from the mainland, to stay put until they see a clearer picture, which could be the early part of next year.'
Fong also says he expects residential rental prices to drop by 8-10 per cent as more property investors seek revenues from leasing. 'Cash-rich property owners are in no hurry to sell; they will wait and see what happens. However, they will want to lease their properties as an edge against inflation,' he says.
Like other analysts, Fong takes the view that super-luxury property prices have probably peaked for the time being.
'We expect the prime and luxury property market to continue performing better than the secondary market, but even in the high-end luxury segment investors have become more cautious,' he says.
Looking ahead, Fong believes Hong Kong's property market remains attractive for investors.
'I have confidence in the future of Hong Kong's long-term property market as an investment because there are many strong fundamentals. For example, the rapid economic growth of mainland China and Hong Kong's strong position as a global financial centre are both important factors,' he says.
In spite of an increase in the cost of borrowing, mortgage rates are still manageable for many, Fong says.'We should also remember that land remains in short supply and an increase in demand will contribute to pressure on property pricing,' he says.