Weakening Economy Adds Pressure to Hong Kong's Housing Market
Global property consultant JLL tells World Property Journal this week that because Hong Kong is constrained by a weakening economy and uncertainties around the market continues, local developers are adopting an increasingly conservative bidding strategies in government land sales.
Mainland China developers were particularly active early in the year as they pressed on with their globalization plans; acquiring three of the first eight residential sites sold via public tender. The dim outlook held by developers was reflected in the land sales results, with five of the winning bids coming in at below the lower end of market expectations. Based on our analysis of government land sales results, residential land prices in select districts have fallen by as much as 20% over the past 12 months. With interest from mainland developers also starting to cool in the second quarter, this trend is likely to continue over the short-term.
Home sales reached their lowest levels on record in the first quarter before recovering slightly in the second quarter. Still, average monthly sales volumes in the first half fell 38.3% y-o-y to 3,320, compared with the monthly average of 5,377 recorded in the corresponding period in 2015. Home sales from January to March were lower than the previous market lows posted during SARS outbreak when monthly transactions fell to as low as 4,130 in May, 2003.
In the primary market, an increasing number of developers are now extending financing plans to prospective buyers to help boost flagging sales as an alternative to cutting asking prices or offering further discounts. Still, this has remained largely restricted to developers with better financial standing and stronger balance sheets who have an edge over smaller sized developers in providing such aggressive financing schemes. Market response to these schemes, however, has been mixed.
In the secondary market, capital values of mass residential properties trended down 6.4% in the first half as volatility in the local stock market and the prospect of further interest rate hikes led to more homeowners willingly lowering prices. Still, the main challenge for home seekers remains the stringent Loan-to-Value measures which act as a barrier to entry, especially in the secondary market where buyers are unable to benefit from financing options and rebates. Capital values of luxury residential properties, which had been faring better, are now also starting to soften, down by 1.9% in the first half.
One segment of the market which continues to buck the trend is the ultra-luxury property market where buying interest remains largely intact through the first half. A total of 55 properties priced over HKD 100 million were sold, which was 15% less than over the corresponding period a year earlier but the average transaction value increased by 8% to HKD 304 million; reflecting the willingness of buyers to pay a premium to secure properties that rarely come to market.
In the residential leasing market, economic uncertainties and less optimistic hiring intentions continued to affect leasing demand for luxury residential properties. With more tenants downgrading to units commanding smaller lump sums, rentals remained under pressure.
Joseph Tsang, Managing Director and Head of Capital Markets at JLL tells World Property Journal, "The government's spicy measures have and will continue to restrict upgrading activities in the market. With more than 35,000 units looking to be launched onto the market over the next 12 months, developers will have to continue to use aggressive sales tactics to draw buyers. Housing prices in districts such as Yuen Long and Tsuen Wan, which have the greatest number of new launches in the coming 12 months, are likely to be under the most pressure. Coupled with the uncertainties in the interest rate outlook and flagging results in the government's land sales market, home prices are expected to remain under pressure. Hence, despite the recent signs of stabilisation, we maintain our view that capital value of mass residential will drop 10-15% this year, while luxury residential will decline 5-10%."
"The residential leasing market will turn increasingly tenant-favourable against a surge in rental supply and creeping vacancy at the top-end of the market. The leasing environment will continue to face challenges against dim hiring intentions and a gloomy economic outlook. As a result, we expect rents will drop 5-10% this year."