20,000 new units coming to market in 2022, exerting further downward pressure on home prices
According to JLL's latest Hong Kong Residential Sales Market Monitor report, the fifth wave of COVID-19 weighed down on market activities in the first quarter of 2022, driving mass residential prices down by 3.2% quarter-over-quarter.
JLL has downgraded its forecast for 2022 mass residential market capital values to drop around 5%, compared to the rise of 0-5% in the previous forecast. The downgrade was mostly attributable to the dampened sentiment in the first quarter.
Joseph Tsang, Chairman at JLL in Hong Kong said, "In the first quarter of 2022, mass residential capital values declined by 3.2% while luxury residential capital values dropped 2.5%. But as the pandemic stabilizes, we expect the activity level in the housing market to bounce back to a high level similar to 2021. Driven by pent-up demand, potential buyers will support the housing market upon the relaxation of social distancing measures. Judging from the high volume of private residential units pending for pre-sale consent approval, we expect a high concentration of launches in the second half of 2022, with potentially over 20,000 units to be issued with pre-sale consent in the year, similar to the previous peak in 2018. Combined with the factor of increasing interest rates, housing prices will be under pressure."
According to the Land Registry, residential sales volume registered the lowest level in two years at 10,056 deals in 1Q22, a drop of 33.8% q-o-q. Most developers opted to postpone new launches, especially after January when the gathering restrictions further tightened which lowered market activity and dampened sentiments. As such, sales transactions in the primary market recorded a more drastic drop of 63.2% q-o-q, compared to the decline of 20.8% in the secondary market. In terms of capital values, as potential buyers in the mass/medium market are generally more price-sensitive, the drop in mass residential capital values is heavier compared to the luxury counterparts.
While demand for housing in Hong Kong is inherently strong, the borrowing rates have embarked on a rising trend. Following the Federal Reserves' action, the Hong Kong Monetary Authority raised the base rate by 25 bps in March. The HIBOR had been trending up even earlier and reached 0.3% as of end-March. The rising rates and the expectations of further increases will likely dampen buying sentiment.
Norry Lee, Senior Director of Projects Strategy and Consultancy Department at JLL also commented, "New launches in the coming months will be crowded as developers have postponed launches originally slated in 1Q to 2Q or after. As many as four projects consisting of 1,211 units were issued with pre-sale consents but not yet launched for sale during 1Q22. The high level of expected supply in the primary market will likely prompt developers to take on competitive pricing strategies, which in turn will exert pressure on the secondary market. As such, we expect the price trajectory in the remaining three quarters to be largely flat."
But, Nelson Wong, Head of Research at JLL in Greater China commented, "The level of activities is set to climb in the coming months as projects are launched. The relaxation of the Mortgage Insurance Programme will also boost upgrading demand, especially in the above HKD 10 million segment."