• Luxury transaction volumes declined in response to a series of threats; prices slipped
• The vacancy tax is prompting further primary sales in the mass residential market
• The recent policy address may fuel short-term demand, but land supply solutions remain long-term
Hong Kong – 24 Oct 2019 Prominent real estate advisor Savills pointed out that while recent social unrest and worsening economic conditions have cast a cloud over the housing market in general, mass residential volumes have held up well thanks to buoyant primary sales over the first eight months of the year. The implementation of a vacancy tax by year-end should accelerate launches of backlog units as well as new projects, maintaining market momentum.
Luxury volumes declined significantly from April onwards as a series of threats including the trade war, a subdued stock market and rent social unrest. Among HNWIs’ and family offices, investment strategies turned to more conservative themes with few choosing to invest in super luxury housing. As a result, Hong Kong Island saw the sharpest decline in sales of luxury properties (over 1,000 sf / over HK$10 mn) from near 100 in April to around 10 in September, a 90% reduction. The Kowloon / NT luxury also experienced a fall in transactions, with primary launches in Ho Man Tin and Shatin / Tai Po helping to sustain buyer interest in a difficult market. Volumes declined by 54% from April to September, reaching 57 transactions. Only 8 transactions of over HK$100 million were recorded on the Peak and Southside in Q3/2019, significantly lower than the 25 super luxury premises transacted last quarter, and marginally lower than the 11 transactions recorded a year ago when investment sentiment was clouded by the first interest rate hike.
With lacklustre activity levels, luxury residential prices receded across the board in Q3/2019, with luxury apartment prices on Hong Kong Island slipping by 1.7% while Kowloon / NT falling by 1.5%.
In the mass residential market, the gazette and likely implementation of the vacancy tax proposal by year-end has prompted further primary sales. In the first eight months of 2019, a total of 15,601 primary transactions were recorded (+43% YoY). The increase has offset the decline in secondary sales (-19% YoY), so overall residential transaction volumes remained relatively constant from January to August in 2019 as a result.
Mr. Simon Smith, Senior Director, Research & Consultancy commented: “With businesses hit by the trade war and confidence rattled by local unrest, many investors are placing more emphasis on cash preservation or are looking overseas for opportunities. The implementation of the vacancy tax is likely to continue to encourage new launches, supporting New Territories volumes to year-end.”
Mr. Keith Chang, Senior Director, Realty Investment said: “The surprise rise in the LTV ceiling for 80% and 90% mortgages to HK$10 million and HK$8 million respectively may fuel short-term demand for secondary premises in those particular price brackets. While the mass market is benefitting from supportive government measures which may boost prices over the next three to six months, if worsening economic fundamentals feed through to rising unemployment and lower wages, demand may dwindle again next year.”
Ms. Edina Wong, Senior Director, Residential Services said: “It is worth remembering that luxury prices are being supported by constrained supply levels, negative real interest rates and ample local liquidity and the likelihood of steep price discounts still seems remote. We expect to see a decline in values of less than 5% to the end of the year, reversing most gains made over the first half.”
Mr. Patrick Chau, Senior Director, Residential Development & Investment added: “The government has put forward various measures to resolve the land supply shortage, however, most remain long-term and will have little impact on the market in the near-term. With supportive fundamentals, it is difficult to foresee any dramatic fall in prices.”