1) With a target GDP growth rate of 4 percent per year, US economy may grow faster than expected
On the day of his inauguration, Friday 20 January, US President Donald Trump and his team published an outline of key plans which the new administration intends to focus upon on the official White House website. Concerning economic growth, Trump’s administration aims to create 25 million American jobs in 10 years and boost the economy to achieve 4 percent annual growth. Tax reforms and the renegotiation of existing trade deals are also mentioned. (Source: SCMP, 21 January, 2017)
Colliers Research expects Trumps’ economic policy to be expansionary in the short-term and contractionary in medium-term. Favourable economic prospects in Asia Pacific region should underpin leasing demand from occupiers for office space and from investors for office buildings in Asia over 2017. We foresee a further widening of rent levels between prime and non-prime districts in Hong Kong due to divergence between demand and supply. With net yields now low in many markets, scope for further capital growth may look limited. However, over time, we expect the combination of President Trump’s election in the US and Brexit in Europe to remind global investors and occupiers of the potential for shocks in developed as well as emerging markets, and so mitigate political and economic concerns about Asia. China, Hong Kong and Singapore remain our preferred investment markets, while India has high long-run growth potential and deserves closer attention.
2) Hong Kong named most expensive housing market in the world for the seventh straight year
Hong Kong kept its ranking as the world’s least affordable urban centre to buy a home for the seventh year running. The city’s apartments cost 18.1 times gross annual median income, according to the Demographia International Housing Affordability Survey’s study of 406 cities around the world. That’s a slight improvement from the 2015 study, which stood at a record 19 times income. Sydney was the second least affordable housing market, with prices at 12.2 times median income, followed by Vancouver at third place. (Source: SCMP, 23 January, 2017)
We note some second hand market vendors have become less aggressive and willing to reduce the price and release stock in recent transactions. For example a residential unit in Island East was sold with a transaction price 10 percent less than bank valuation and almost 18 precent less than the market price.
However the primary sales market is still very active with more aggressive pricing. All 400 available units at Pavilia Bay, Tsuen Wan, were sold by 20 January with an average price around HKD15,000 per sq ft and unit prices ranging from HKD4.42m to 26.5m.
While the latest stamp duty increment has failed to dampen Hong Kong house prices so far, looking forward, faster than expected US economic growth in 2017 will drive up inflation and interest rate further, which will push Hong Kong into positive real interest rates earlier than the 2H of 2018. This will apply more pressure to adjust Hong Kong property prices after 2017.
3) In his final Policy Address the Chief Executive lays out long term programmes to increase land supply
The CE conceded the city’s housing shortage and high prices were difficult to resolve despite multiple efforts in the past. On increasing land supply, the Policy Address suggests changing land uses, relaxing development intensity and new reclamation initiatives to meet future demand. He said the city should consider allocating a small proportion of land in country parks for public housing and non-profit-making homes for the elderly, an idea that alarmed many local environmentalists. (Source: SCMP, 18 January, 2017)
In Chief Executive CY Leung’s final Policy Address he mentioned expediting and increasing supply as the ultimate solution to a number of housing-related issues with various short, medium and long-term land supply initiatives able to provide over 600,000 housing units in total. Concerning private housing, the projected supply of first-hand properties for the coming three to four years was 94,000 units as at 2016 year end.
Property prices will drop as demand and supply reach equilibrium. Given strong demand in a continuing environment of negative real interest rates, a clear and timely pipeline of housing supply is essential to tame the housing market. Otherwise, when the market perceives the supply target is unfulfilled, more people will decide to make a home purchase, pushing residential prices even higher.