A look ahead: New homes expected to be the main driver of Hong Kong’s real estate sector

What can the local property sector look forward to in the remaining months of this year?

Property agents and analysts say that sales of new homes are expected to be the main driver of the local real estate sector.

Sales of new small to medium-sized units below HK$10 million have remained active this year and demand is likely to be sustained throughout the third and fourth quarters, property agents say.

One consultant expects buyers to be able to look forward to sweeteners from developers. Many also feel that the low-interest-rate environment will continue for some time as the massive fallout and economic uncertainty from last month’s referendum – in which the majority of Britons voted to leave the European Union – are expected to be felt this year and may spill over into 2017.

Thomas Lam, senior director and head of valuation and consultancy at Knight Frank, says that “pricing and packages offered by developers will be key to closing deals”, in addition to “developers offering mortgage [packages] to homebuyers”.

According to Lam, one example of high-volume sales is in Tseung Kwan O, where large-scale housing developments drew interest thanks to attractive prices and sales packages, covering discounts, mortgages and second mortgages. Some developers offered mortgages up to 95 per cent of the unit price. Lam says that the sweeteners allowed some buyers, who did not have enough money for the deposit, to get on the property ladder. He expects the decline in overall home prices to slow down in the second half of this year.

Joseph Tsang, managing director of Jones Lang LaSalle Hong Kong, sees a limited impact of increased housing supply on the primary market of small to medium-sized units, particularly those situated in urban areas where fresh supply is scarce.

“The units of Swire Properties’ Alassio on Seymour Road, Mid-Levels, have sold well … The impact will hit hardest in such areas with ample future supply as Tseung Kwan O, Yuen Long, Tai Po and Tuen Mun,” Tsang says. “Home prices in these areas have been lingering between HK$9,000 and HK$12,000 per square foot and are likely to be subject to further pressure.”

Keith Chang, managing director of Savills Hong Kong, says home prices are still under downward pressure because of “the imbalance between supply and demand [which] has grown wider and is likely to cause prices to further decline by 10 per cent in the second-half. This will discourage end-users and speculators.”

Chang says the primary luxury market is expected to enjoy high demand because of “limited supply” in traditional upmarket areas such as The Peak, Mid-Levels and the south side.

Lam agrees. “When available at attractive prices, these luxury apartments in such areas as Ho Man Tin and Mid-Levels West, continue to enjoy good demand”, and there have been few transactions of high-end homes, priced above HK$10 million, because of “limited availability”, in these areas.

The secondary market for luxury and small to medium-sized homes has borne the brunt of the property market slowdown this year. Given that the government’s measures to curb speculation are still in place, the threshold for purchases of second-hand housing has remained high. Most market activity has been in the primary market, Lam notes.

Lam’s view is echoed by Chang. “Transactions in the secondary market will be ‘frozen’ and prices are likely to drop by a further 10 per cent. Developers will speed up their launches of new properties and adopt more aggressive selling tactics in the second half of this year. Most of the home purchasing will shift to the primary market.”

Tsang says the outlook for the secondary market remains pessimistic for the second half of this year. “Prices are under pressure in areas where many second-hand units are available and in non-traditional upmarket residential districts, like West Kowloon.”

Lam also predicts that prices will drop further for second-hand small to medium-sized units in the New Territories that were sold at high prices when they were new.

As for second-hand luxury homes, Lam forecasts the price decline in the second half of the year will be between 5 and 10 per cent.