Weekend Property

Word of caution: Hong Kong’s property sector faces turbulence, despite transaction volume hitting four-year high

Higher prices and healthier transaction volume may suggest that the local housing market has recovered, but some in the industry are cautioning that it is still heading downwards due to weak fundamentals

PUBLISHED : Friday, 04 November, 2016, 12:32pm
UPDATED : Friday, 04 November, 2016, 12:57pm

Has Hong Kong’s real estate market turned the corner after suffering price drops over the year?

Three surveys by international property consultants, such as Knight Frank, JLL and CBRE, suggest that volumes and prices saw an upswing in the third quarter, as new projects received a strong response from buyers.

“Hong Kong’s residential transaction volume increased 34.4 per cent month-on-month in September to 7,826, a four-year high,” according to David Ji, director and head of research and consultancy, Greater China at Knight Frank. He was citing figures from the Land Registry.

Ji says that the rise is attributable to robust activity in the primary market, as more end-users and investors joined the buying spree.

Yu Kam-hung, senior managing director, Hong Kong investment properties at CBRE, says in a report that confidence in the Hong Kong residential sales market strengthened in the third quarter, partly as a result of the US Federal Reserve’s decision to once again postpone the next interest rate hike and the new launches.

“New launches during the quarter were very well received, with 6,244 units sold by developers in the primary sales market, a figure 11 per cent above that registered for the first and second quarters combined,” Yu says in the report.

JLL also agrees that Hong Kong registered strong quarter-on-quarter volume growth. Deal volumes in the third quarter were 56 per cent higher compared with levels in the previous quarter, a JLL report says.

A number of new residential developments were oversubscribed in September. For instance, over 95 per cent of the 545 units available in One Kai Tak, in Kowloon City, were sold within a week of launch, while The Papillons, in Tseung Kwan O, sold all its 857 units within a month.

In the land sales, major developers continued to adopt aggressive bidding strategies to fend off increasing competition. In one notable sale, a residential site in Kau To Shan, Sha Tin, was sold for HK$8,001 per square foot, 33 per cent more than the high end of market expectations.

Hong Kong’s residential transaction volumes increased 34.4 per cent month-on-month in September to 7,826, a four-year high
David Ji, director and head of research and consultancy, Greater China, Knight Frank

The number of aggressive bids are expected to continue as land sales tenders have become more competitive because of the higher participation rate of mainland developers. A slew of measures launched by the central government to cool the mainland property market means that the developers are looking to Hong Kong to build their land banks.

JLL’s report says that mainland corporations dominated transactions by snapping up residential land that came up for public auction. It said that investors continued to favour office properties as Chinese demand supported rents. High pricing recorded in recent land sales and office deals will likely lead to a reset of sales pricing benchmarks in the near term.

Ji says that in order to reach the housing supply target, five government sites and two MTR projects, capable of providing 4,600 flats in total, will be put up for tender in the coming three months.

Despite abundant housing supply and a potential interest-rate hike, strong residential demand and developers’ competitive sales packages have resulted in a significant rebound in transaction volumes. Home prices, therefore, are set to remain stable over the last two months of this year.

Mandy Fong, associate district manager of Mid-Levels at Midland Realty, says that prices of luxury property have remained stable throughout this year and would see an upward trend in the coming months. “With rough times behind us, luxury prices would rise in well-known buildings in Mid-Levels and surrounding areas,” Fong says.

But some research houses in Hong Kong are still unsure about the property price rise. According to Japanese research and investment house Nomura Holdings, the city’s residential property prices are expected to fall a further 10 per cent in the medium term. Nomura did not give a timeline for its prediction.

UBS’s head of China and Hong Kong property research Eva Lee has been quoted as saying that the recent upsurge in buying new developments has been mainly because of the incentives offered by the developers.

She believes the market is still heading downwards due to the fundamentals – an increase in supply and the slowing local economy.

Hong Kong’s home prices have jumped more than 350 per cent since 2003 when the city was in the grip of the severe acute respiratory syndrome outbreak.