28 February 2013
The Hong Kong SAR Government has introduced various measures to tighten both the supply and demand side of the frenetic local property market in an effort to stabilise it.
While observers are still awaiting the impact of the latest demand-side cooling measure – the doubling of stamp duty on properties valued at more than HK$2 million – there is considerable pressure on the supply side of the housing market.
“New supply in the private housing market is expected to average 16,750 units per year between 2013 and 2016. Although this figure is an improvement on the annual average new supply of 9,893 units over the previous six years, it is still much lower than the previous average of 27,767 units per year between 1985 and 2006,” says Joanne Lee, Manager of Research & Advisory at Colliers International.
Besides the below-average new supply expected in the next couple of years, strong demand is also fuelling Hong Kong’s housing frenzy.
The number of residential sales transactions dropped significantly right after the implementation of Special Stamp Duty (SSD) and the introduction of Buyer’s Stamp Duty (BSD) in late October 2012; falling 19% month-on-month (MoM) in November and 53% MoM in December 2012, according to the Hong Kong SAR Government Land Registry’s statistics.
However, the overall volume of residential transactions soon regained its growth momentum, increasing by 65% MoM in January 2013. At the same time, luxury residential sales activity picked up. The number and total turnover of transactions valued at more than HK$10 million increased by 89% MoM to 617 and 173% MoM to HK$10,577 million respectively last month. Since speculation has largely evaporated since the BSD’s implementation, most of the growth has been driven by demand from end users.
“Increasing pressure generated by solid pent-up end-user demand makes it easy to understand the government’s introduction of further tightening measures in February 2013,” says Ricky Poon, Executive Director of Residential Sales at Colliers International.
The luxury residential sector’s share of total sales transactions has declined since the cooling measures took effect, whereas that of the middle-price sector has increased.
According to Land Registry and EPRC statistics, the percentages of luxury residential sales (valued at more than HK$10 million) in the total residential transaction figures declined steadily in the past twelve months, down from 11% in January 2012 to 10% in September 2012 and 8% in January 2013. In contrast, middle-price (HK$3 to HK$5 million) transactions accounted for a growing slice of the pie, up from 21% in January 2012 to 32% in September 2012 and 38% in January 2013.
“Local residential properties have lost their attractiveness to many investors who are seeking short-term speculative gains, due to greatly increased buying costs since the government’s 2012 tightening measures, particularly the introduction of the BSD. In addition, the increased SSD further discouraged buying interest in the luxury sector, which explains the lower percentage of luxury residential transactions,” Poon explains.
On the price front, the luxury and mass residential sectors have also shown different trends, and the gap between them has closed. The average luxury residential price has dropped by 4.3% since the government curbs were announced in October 2012, whereas the average mass residential price had increased by between 5 and 8% by the end of January 2013.
Despite the low-interest-rate environment and abundant capital available in the market, Poon expects the latest cooling measures, including the doubling of the special stamp duty for properties over HK$2 million, the BSD, and tighter stress testing for mortgages, will further blunt the appetite of investors for residential properties. Meanwhile, less-favourable financing terms and increased buying costs are likewise expected to make potential buyers more cautious about their decisions.
Consequently, the volume of local residential transactions is expected to decrease in the short term, while mass and luxury residential prices are projected to fall by 10% over the next 12 months. Similarly, residential rents are likely to decline by an average of 4% in the next 12 months.