The Housing Market in Hong Kong is Under Pressure Due to the Weakening Economy
Since Hong Kong is constrained by a slowing economy and market uncertainty persists, local developers are pursuing increasingly conservative bidding strategies in government land sales, according to JLL, a global property consultancy. Event
Continent Early in the year, Chinese developers were especially successful, purchasing three of the first eight residential sites sold via public tender as part of their globalization plans. The developers' pessimistic outlook was expressed in the land sales figures, with five of the winning bids falling below market expectations. Residential land prices in some districts have dropped by as much as 20% in the last year, according to our review of government land sales data. This pattern is likely to continue in the short term, with mainland developer interest beginning to wane in the second quarter.
In the first quarter, home prices fell to their lowest point on record, before recovering marginally in the second quarter. Despite this, average monthly sales volumes in the first half dropped 38.3% y-o-y to 3,320, compared to a monthly average of 5,377 in the same timeframe last year. From January to March, home sales were lower than the previous market lows, which occurred during the SARS outbreak in May 2003, when monthly transactions dropped to 4,130.
In the primary market, a growing number of developers are providing financing options to prospective buyers as an alternative to lowering asking rates or offering more discounts to help raise sales. Even so, such aggressive funding strategies have largely been limited to developers with greater financial standing and stronger balance sheets, who have an advantage over smaller developers. The market's reaction to these schemes, on the other hand, has been mixed.
In the first half, capital values of mass residential properties fell 6.4 percent in the secondary sector, as increased uncertainty in the local stock market and the possibility of more interest rate increases prompted more homeowners to voluntarily lower their rates. The key barrier to entry for home buyers remains strict Loan-to-Value measures, which act as a barrier to entry, especially in the secondary market, where buyers are unable to take advantage of financing options and rebates. Luxury residential property capital rates, which had been doing well, are now beginning to sag, down 1.9 percent in the first half.
The ultra-luxury property industry, which has largely maintained its buying interest in the first half of the year, is one segment of the market that appears to defy the trend. A total of 55 properties valued over HKD 100 million were sold, which is 15% less than the same time last year, but the average transaction value increased by 8% to HKD 304 million, demonstrating buyers' willingness to pay a premium for properties that seldom come to market.
Economic uncertainty and less ambitious hiring plans continued to impact leasing demand for luxury residential properties in the residential leasing industry. Rentals remained under pressure as more tenants downgraded to units with lower monthly payments.
According to Joseph Tsang, Managing Director and Head of Capital Markets at JLL, " "The government's punitive policies have stifled sector upgrades and will continue to do so. With more than 35,000 units expected to be released in the next 12 months, developers will need to keep up their aggressive promotional strategy to attract customers. Housing prices in areas like Yuen Long and Tsuen Wan, which are expected to see the most new launches in the next 12 months, are likely to be the hardest hit. Home prices are expected to remain under pressure, given the uncertainty in the interest rate outlook and the faltering performance in the government's land sales market. As a result, despite recent signs of stabilization, we continue to believe that the capital value of mass residential will fall 10-15% this year, while the value of luxury residential will fall "5% to 10%."
"Against an increase in rental supply and creeping vacancy at the top end of the market, the residential leasing market would become increasingly tenant-friendly. The leasing market will continue to be challenged by a lackluster hiring outlook and a bleak economic outlook. As a result, we anticipate a 5-10% decrease in rents ""This is the year."