Hong Kong Buyers Adopt 'Wait and See' Attitude

Hong Kong Buyers Adopt 'Wait and See' Attitude

Residential News » Hong Kong Edition | By Michael Gerrity | December 29, 2016 9:00 AM ET

Property Developers to Face Inventory Build-up in 2017

According to JLL's Hong Kong Residential Sales Market Report published this week, a rise in borrowing rates and stamp duty taxes are significantly impacting Hong Kong's residential market.

Since the U.S. Fed's decision in December 2016 to raise interest rates, borrowing costs have increased as the one-month HIBOR surged by 45 bps within a month. Still, local banks may keep spreads for HIBOR-based mortgages attractive to help an otherwise quiet mortgage borrowing environment. The repayment ability of homeowners could come under more pressure, though few are expected to turn to panic-selling mode. Assuming a 200 bps increase over the next four years, homeowners would need to fetch an extra HKD 1,000 towards their monthly mortgage payments for every HKD 1 million borrowed with a 20-year loan tenure.

The local property market took another blow as the government stepped in with a 15% stamp duty tax on most residential transactions to curb heated buying activity. On this note, 2017 will be a major year in terms of policy direction, with the Chief Executive election scheduled in March. Given Hong Kong's growing reliance on PRC-backed funds, the local property market remains susceptible to the regulatory environment in the mainland, more recently, including the restrictions on onshore funds for foreign real estate investments over USD 1 billion.

In terms of inventory, JLL expects primary home sales in 2016 to reach no more than 17,800 units and transaction volumes in 2017 to remain muted. Between 2017 and 2019, more than 20,000 completions per year are anticipated. In view of the higher interest rate and stamp duty, more buyers may adopt a wait-and-see attitude, resulting in developers facing a build-up in inventory levels.

Henry Mok, Regional Director of Capital Markets at JLL said, "The drop off in demand comes at a time when more supply is set to be launched onto the market, further distorting the market dynamics. While residential sales volumes are like to soften, potential silver linings in the market include capital inflows from mainland China despite restrictions on onshore funds, the strong holding power of homeowners and gradual improvements in the economy, lending support to capital values of mass and luxury residential remain broadly stable and rise by up to 5% in 2017."

JLL expects continued challenges to Hong Kong's property market well into 2017 as more buyers may adopt a wait-and-see attitude, causing Hong Kong developers to face a build-up in property inventory.

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