Hong Kong residential land prices fall up to 20pc in first half, says JLL

Local developers sat on their hands, while bidding interest from mainland also started to cool

PUBLISHED : Thursday, 07 July, 2016, 10:15pm
UPDATED : Thursday, 07 July, 2016, 10:58pm

Land prices in some districts of Hong Kong fell as much as 20 per cent in the first half of 2016, despite sustained mainland interest in residential sites, as local developers sat on their hands in view of a dim market outlook and weakening economy.

“Five out of eight sites sold via government public tender in the first half of 2016 did not meet the lower end of market expectations,” according to figures from JLL’s mid-year Land and Property Review 2016, released Thursday.

During the second quarter of this year, bidding interest from mainland developers also started to cool, and JLL predicts a further downward trend to continue in short term.

Joseph Tsang, managing director and head of capital markets at JLL, forecasts that “capital values of mass residential properties will drop 10-15 per cent, while luxury residential will decline 5-10 per cent”.

In addition, he said “uncertainties in the interest rate outlook and flagging results in the government’s land sales market” will place further pressure on Hong Kong land sales, which is a major revenue stream of the Hong Kong government.

Five out of eight sites sold via government public tender in the first half of 2016 did not meet the lower end of market expectations
JLL’s mid-year Land and Property Review 2016

Midland Realty’s latest figures released this week recorded “the worst six-month numbers” in 26 years, with overall property sales in Hong Kong plunging 39.1 per cent to 26,571 deals from 43,636 deals since the start of the year, and sales values down 39.2 per cent in the last six months to HK$189.5 billion.

JLL’s mid-year report also indicated that average monthly home sales hit record lows, with sales volumes falling 38.3 per cent year-on-year to 3,320 compared with 2015’s monthly average of 5,377.

This is despite enthusiasm from mainland China developers early in the year, who acquired three of the first eight residential sites sold via public tender in Hong Kong, according to JLL’s mid-year report.

Tsang, however, said Hong Kong remains an attractive investment prospect in the long run for mainland developers, who are “motivated by opportunities for international exposure and gaining experience for their developments back in China”.

Denis Ma, JLL’s national director and head of research, added that with excess supply building up in the local market, developers are also “moving their interest towards commercial developments”, rather than relying solely on residential projects.

Thomas Lam, senior director and head of valuation and consultancy at Knight Frank, suggested that “commercial Chinese investors will purchase more non-residential projects, including offices and shopping malls”.

Meanwhile, land markets in second-tier mainland cities, especially, have hit record highs with prices buoyed by aggressive bidding from Chinese buyers.

“The depreciation of the RMB and slowdown of the Chinese economy will also push mainland investors not only to the Hong Kong market, but also towards other overseas investment,” according to Lam.

“This is not only to diversify their investment portfolios, but also for wealth protection,” he said, particularly given the volatile state of the global economy at present.