Based on a new report released this week by global real estate firm Jones Lang LaSalle titled the Hong Kong Mid-Year Property Review, the Hong Kong residential market has slowed in 2011.
Over the past 12 months, the government have been imposing austerity measures to better manage overheating risks in the residential sales market. The combined impact from the implementation of a Special Stamp Duty and the higher barriers set for potential buyers through lower loan-to-value ratios led to a relative slowdown in sales market momentum in 1H11.
A rounded total of 55,200 residential sale-and-purchase agreements were recorded during the period, reflecting a 16% drop from a year earlier. However, an average of 9,200 transactions per month during 1H11 is still considered healthy compared with the levels previously achieved in 2005, 2006 and 2008 (8,600, 6,800 and 8,000 transactions per month, respectively).
For properties at HKD 20 million or above, a total of 1,260 transactions (preliminary) were recorded in 1H11, which reflects a fall of 33% compared to 2H10 although it went up 7% on a y-o-y basis. These transactions added up to a total consideration of HKD 59.4 billion, down 20% compared to 2H10 and up 11% y-o-y. Despite a slowdown in sales volume, capital values of luxury residential properties increased 16.2% during 1H11. In the leasing market, rents for luxury residential properties also trended up by 4.9% over the same period, mainly as a result of sustained leasing demand from corporate expatriates.
The first half of 2011 saw capital values for mass residential properties increasing by 10.1% due mainly to the combined results of rising household incomes, sustained low holding costs and a tight vacancy market environment. A slowdown in sales momentum, coupled with the tight supply situation, has led to a thinner sales volume in the primary sales market. In the first five months of 2011, a total of 4,700 new units were sold in the primary market, compared with 13,600 units sold in the full-year of 2010.
In spite of the relative slowdown in the sales market, developers remained active in bidding for greenfield sites. Eight residential sites were launched and sold by the government in 1H11, fetching a total of HKD 20.4 billion. These sites, which are mainly due for completion in 2015/2016, will have a potential building capacity of about 800 units.
Joseph Tsang, Managing Director of Jones Lang LaSalle Hong Kong, said, 'The latest round of loan-to-value ratio restrictions introduced in June led to a relatively quiet sales market towards the end of 1H11 as end-users and upgraders have increasing difficulty in moving up the housing ladder and improving their living environment. These measures are there only to reduce liquidity in the mass and medium residential sales market without affecting much on existing property owners and therefore will hardly lead to falling prices even though local rates for new mortgage loans have started to edge up in the recent months.'
"Looking ahead in 2H11, we do see some market risks rising but not at hazardous levels. Despite the recent marginal rise in effective mortgage rates, the low holding costs remained intact. In view of the higher loan-to-value ratio requirements and the growing uncertainties in policy and macroeconomic risks, we expect sales volume to remain low for the rest of 2011 while rents are expected to catch up on the back of some buy-to-lease switches. There is also a low chance to see future supply rebounding until 2015/2016, providing strong support to capital values in the foreseeable future."