1) Another new record price for Wong Chuk Hang property

News

The Empire Group is the winner of a public tender for Zung Fu Aberdeen Garage, an en-bloc 10-storey industrial building in Wong Chuk Hang owned by Zung Fu, the exclusive retailer of Mercedes-Benz automobiles. The HKD1.56 billion (USD203 million) price tag or HKD9,541 (USD1,239) per developable GFA of 163,500 sq ft represents a new record. The investor intends to redevelop the building into a new industrial building and the total estimated investment will be HKD2.6 billion. (Singtao Daily, 10 March 2017)

Research View

Following the opening of the MTR South Island line, the transformation of the Wong Chuk Hang area has accelerated. In addition to this latest transaction involving the Zung Fu Aberdeen Garage building, upcoming commercial and residential developments in the area should create a new hub for professional services and creative industry within a few years. We reaffirm our positive outlook for rents in the Wong Chuk Hang office market and expect more expatriates will choose to live in Wong Chuk Hang and Ap Lei Chau.

2) Property buyers will not feel the pain of upcoming interest rate hikes yet

News

Bank of China Hong Kong’s HIBOR-based prime rate of H+1.3% was originally for new flats priced above HKD5 million (USD643,000), but the threshold was recently removed. That means H+1.3% can be applied to new flats of any price. The price threshold of second-hand flats remains at HKD4 million (USD514,000). HSBC Hong Kong has also lowered the threshold (new flats and second-hand flats) to HKD3 million (USD385,000). (Source: Oriental Daily, 9 March 2017)

Valuation view

Another round of “Mortgage War” looks set to begin in Hong Kong. Despite the forthcoming US interest rate hikes, small value flats can also enjoy lower mortgage rates. This can be a real help for first-time buyers in the market.

Research View

With another interest rate hike in the US imminent, we expect Hong Kong’s property market sentiment to remain positive as the market has already absorbed the latest news. In our core-scenario, the Hong Kong property market will benefit from an improved economic performance, shortage of new supply, and a strong interest from mainland Chinese investors. However, faster than expected US economic growth would increase the number of interest rate hikes this year and could change the local market sentiment when banks start to increase mortgage rates more aggressively than expected.

3) Two property projects reported worse-than-expected sales results over the weekend

News

Two project launches over the weekend recorded worse-than-expected sales results. On Saturday, the second phase of the Alto Residences in Tseung Kwan O sold only four of 42 units after the developer launched the units with a price increase of 57% compared to the first phase. On Sunday, K Wah International sold 23 of the 42 units offered at its K City project in Kowloon. A local agency commented the sales result was not bad but it certainly had slowed down a lot compared to the near sold-out results in previous launches. (Source: SCMP, 12 March 2017)

Research View

Developers have been increasing prices for new developments after several recent launches in which the first batch of units was sold out within a weekend. Given the presence of new kerbs, developers have been aggressively offering stamp duty subsidies and price discounts to attract buyers. By increasing the price, they may offset part of the cost of offering higher subsidies and discounts. Buyers should become more sensitive to price growth as they can expect to have more choices from the increasing new supply. Developers should stay tuned and react quickly to market responses to the price adjustments.