29 March 2017
1) Mobile payment is gaining popularity in local retail market
For the first time, the Hong Kong Monetary Authority (HKMA) published quarterly statistics on Stored Value Facilities (SVF) schemes, issued by 15 SVF licensees. In Q4 2016, the number of SVF accounts in use exceeded 40 million with a total value of transactions over HKD29.7 billion, of which 30% were online purchases. Octopus Cards are still dominant in Hong Kong with more than 30 million active cards; however, 7-8 million of other SVF cards are in use. (Source: Hong Kong Economic Journal, 25 March 2017)
Based on the latest retail sales data, mobile on-line payment value of HKD 11.65 billion accounted for 10.2% of the total retail sales value of HKD114.5 billion in Q4 2016. The penetration rate of electronic payment is still lagging behind Mainland China, but we expect the number and value of electronic payment transactions will grow rapidly in Hong Kong as more locals are adopting new mobile payment platform, especially with more retailers accepting electronic payment and offering new incentives for buyers.
2) The latest suspension by UnionPay fails to slow down the property market with the return of Hong Kong investors
Following a suspension it imposed last October preventing customers from buying investment-related insurance products in Hong Kong by using UnionPay cards, UnionPay has barred Chinese buyers from swiping as down payment to purchase Hong Kong property since last Friday. This move shows tightened capital controls from the mainland. The Cullinan West, one of the latest apartment projects to go on sale this month, 10% of its units is estimated to be sold to mainland buyers (Source: South China Morning Post, 24 March 2017).
The latest suspension of UnionPay cards in Hong Kong has not stopped developers from setting new record price for new flats. While the primary market remains very hot and expensive, the second hand property price also keeps rising due to lack of supply in prime locations. With 5,000 new flats pending to launch in the first quarter of 2017, the primary market will constitute the lion’s share of Hong Kong’s residential transactions and continue to drive the price. For example, Sun Hung Kai Properties has set the asking price for a 972 sq ft unit in its Grand Yoho Development in Yuen Long at HKD12 million, a new record price in Northwest New Territories. The Pavilia Bay in Tsuen Wan jointly developed by New World Development and Vanke Property (Overseas) has also priced some units at HKD20,000 per sq ft or above.
A growing number of Investors who left the residential market due to the stamp duty increase to 15% by the Government last November, have recently returned. At recent new project launches, a higher percentage of buyers purchased three to four units or even up to 11 units in one transaction. For obvious reasons, these units were purchased as a long-term investment and will be kept for leasing purposes.
3) Lower entry fee has made industrial properties popular
Not affected by 15% stamp duty, new industrial buildings have remained popular with an average price of HKD8,000-9,000 per sq ft. With a maximum of 8.5% stamp duty and a smaller ticket price, industrial properties have attracted investors away from the residential market. More units from newly completed revitalised buildings by major developers will enter the market in the following months. (Source: Hong Kong Economic Times, 16 March 2017)
Strong investment sentiment continued with an active industrial property market. The entire block of Jing Wah Building was sold at HKD390 million, a 26% gain in 12 months. The previous transaction record for the building was HKD310 million in Q1 2016. In addition, some industrial buildings with revitalisation potential have been put up for sale in the current market. While the industrial building revitalisation policy officially ended in Q1 2016, there were still a number of last-minute applications pending for approval by the Government.
Industrial properties offer one of the highest overall yields in the property market. Investors are not only attracted to the stable rental income which is driven by a strong leasing demand, industrial properties located in non-“industrial” zones that could be converted or redeveloped for other uses, such as office or residential properties, also provides better value-added opportunities. Given the increasing demand for Grade A office and residential units, we expect industrial properties with the potential to be converted into other uses to remain attractive to investors.