Weekend Property

Hong Kong’s luxury property sector remains strong despite downward pressure, analysts say

Third-quarter sales report from Savills shows strong local and mainland interest in the luxury apartment sector – evidence the firm says of improved market confidence

PUBLISHED : Friday, 09 December, 2016, 2:03pm
UPDATED : Friday, 09 December, 2016, 3:21pm

Reports of luxury home prices deflating this year have been greatly exaggerated, it seems.

Apart from a slight blip recorded midyear, and a knee-jerk reaction to November’s surprise stamp duty increases, Hong Kong’s high-end sector remains strong and should continue its growth trajectory next year, analysts project.

The third-quarter sales report from Savills shows strong local and mainland buyer interest in the luxury apartment sector – evidence the firm says of improved market confidence.

Highlights include 12 luxury units at Mount Nicholson on The Peak being sold for around HK$76,000 per square foot – or HK$272 million to HK$749 million per transaction – in October, with wealthy local families prepared to pay a premium for the unobstructed views and privacy these apartments offer.

Elsewhere, Mid-Levels attracted the most market attention with 75 primary units sold in the three new projects (55 Conduit Road, Cluny Park and The Morgan) in the four months to October, all with prices of HK$30,000 to HK$35,000 per square foot, and lump sums from HK$30 million to HK$120 million. “The warm responses for new luxury apartments were again supported by local wealthy end users,” according to the Savills report.

Hong Kong luxury property market boost as site in Ho Man Tin sells for HK$6.38 billion

“Luxury apartment prices on Hong Kong Island increased by 5.5 per cent over [the third quarter], with prices on The Peak and in Mid-Levels recording above-average growth of 6.3 per cent and 6.4 per cent, respectively.”

Overall, sales volumes for the sector rebounded to a new high since the fourth quarter of 2012, when the buyer’s stamp duty (BSD) was introduced on residential sales. Until November’s hike, the townhouse market was dominated by mainland purchasers: a single buyer splurged HK$1.8 billion on five new houses at 44-50 Chung Hom Kok Road, Stanley, (HK$68,000 per square foot); a site at 16A-16D Shouson Hill Road, south side was sold to Carnival Group, a mainland developer, for HK$1.3 billion, or HK$58,000 per square foot.

This segment of the market is of particular interest to mainland buyers
David Ji, director and head of research and consultancy, Greater China, Knight Frank

Luxury prices in Kowloon and the New Territories also rebounded strongly by 6.5 per cent and 4.9 per cent, respectively, in the third quarter. The highest price growth was recorded in Ho Man Tin (plus 7.3 per cent quarter-on-quarter), a result Simon Smith, senior director Asia-Pacific at Savills Research, puts down to competition among primary launches in the area.

A fall in transactions has been evident since November, but Urosh Teodorovich, associate director and head of business development at Landscope Christie’s International Real Estate, says developers have responded quickly to the “punitive” new taxes as by offering rebate schemes to compensate.

“This represents a practical drop in price, typically of around 10 per cent, which will also vary depending on the developer, project, [and] location,” he says, adding the expectation these tactics will maintain demand for new-build residential projects. “First-hand sales are also likely to be viewed as more attractive investments owing to the inability of landlords in the secondary market to match these perks from developers.”

Teodorovich says a prevailing shortage of supply will continue to underpin demand and push prices higher. He points out that rich mainland Chinese buyers “remain undeterred by the cooling measures and will often buy multiple units at the same time”. Their buying activity is likely to be fuelled by yuan currency fears and the impact of the US dollar and US-China trade under a Donald Trump presidency.

“Although there may have been some corrections in the local market over the past year, given the shortage of land supply – especially in traditional, prime areas on Hong Kong Island – coupled with demand from rich mainland investors, there is a good chance that the Hong Kong luxury residential market will stay strong as we move into 2017,” Teodorovich says.

David Ji, Knight Frank director and head of research and consultancy, Greater China, says luxury prices are not going down, but consolidating.

“This segment of the market is of particular interest to mainland buyers,” he says.

“Taxation control measures might cause buyers to look twice at the mass-market sector but, for the wealthy, it doesn’t matter too much.”

While Ji agrees that the sales tax temporarily slowed sales to a crawl, the full-year picture shows a market segment “more or less unchanged” from a year earlier.

The various government interventions will contain prices below the double-digit growth experienced in recent years, but the sector should still manage growth of around 5 per cent, Ji forecasts.

“I am still quite confident that once mainland buyers digest the new tax, the urgency to move capital abroad, and Hong Kong being closest to home, money will still trickle through. It is reasonable to say there will be enough demand to drive up prices, barring any surprises.”