According to global property consultant JLL, Hong Kong home sales picked up rapidly in Q2 after the social distancing measures were relaxed in April 2022.
The average monthly transaction volume rebounded by 48.4% quarter-over-quarter to 4,975 property transactions in the second quarter of 2022, lending support to the housing market that otherwise was facing increasing headwinds on the interest rate front. Indeed, the policy relaxation-induced recovery of the housing market has been weaker than that seen in the first half of 2021, which recorded a 3% price growth in mass residential.
In the luxury housing market, buying sentiment improved slightly in the second quarter and a number of record-breaking prices for luxury residential were recorded. Capital values of luxury residential rebounded by 1.2% q-o-q in the second quarter, and rents of luxury residential also lifted by 1.0% q-o-q during the same period, supported by local demand.
In the land market, the Civil Engineering Works Index by the Civil Engineering and Development Department showed construction costs surged by 10.8% in 2021, followed by another 3.2% growth in the first quarter of 2022. On the back of the construction cost surges and interest rate hikes, JLL expects developers will turn more conservative in land bidding to maintain the total development cost and existing profit margins.
Joseph Tsang, Chairman at JLL in Hong Kong said, "The land sale market sentiment will stay subdued as housing prices are likely to stay stable in the coming years. The surge in construction costs and interest rate hikes will add to developers' required risk premium and there will be fewer aggressive players in the market as the mainland developers have already turned conservative in the land market of Hong Kong with mainland China's economy slowing. As a result, land prices will stay at a more reasonable level."
Tsang expects the average mortgage rate will continue to rise in the remainder of the year, driving capital values of mass residential to drop 5% to 10% in 2022, while capital values of luxury residential will fall 0% to 5%. Home sales activities in the second half will likely focus on projects along major infrastructure nodes, as overall buying sentiment stays lukewarm.
Hong Kong Residential Indicator - % Change