Hong Kong, 12 April 2018 – While record property prices and higher interest rates have made for an anxious Hong Kong property market, the new Colliers Bubble Watch: Property Market Investment Risk H1 2018 report found market risks are still within an acceptable range. The report conducted by Colliers International (NASDAQ and TSX: CIGI) analysed the city's residential, office, and industrial property sectors.
"As Hong Kong property prices are continuously on the rise, there has been a sense of worry amongst investors about the imminent burst of a property bubble. At Colliers, we want to address these concerns by examining current market conditions to determine risk levels for new property investment. The findings of our assessment showed a low-medium risk level across residential, office and industrial properties." - Nigel Smith, Managing Director of Colliers International Hong Kong.
"According to historical property patterns, it is highly unlikely that Hong Kong’s property market will head into a major adjustment in 2018. We forecast that price growth for residential market will continue. Investors will remain cautiously optimistic about office spaces and industrial properties will benefit from the new industrial building revitalisation scheme." - Daniel Shih, Director of Research at Colliers International Hong Kong.
Key assessment findings: No fear of property bubble in HK
Price index and volatility are both important in detecting market risk
According to the historical pattern, we believe both price index and volatility are important references when assessing property market risk. Tracking a property bubble based on high property price index is not enough. Instead, we have examined the property market volatility, i.e. the six-month growth rate, to determine the risk level. Our analysis has found that before the property market headed into a major adjustment, price growth momentum would also accelerate, and the six-month growth rate would move beyond one-standard deviation (+1SD) of its mean average. Hence, it is critical to use both property price and volatility as key references when assessing investment risk.
Hong Kong's residential market remains strong and in serious demand
In February 2018, a 6.9% price growth of Hong Kong's residential properties was on the charts for a six-month period - well within the standard deviation of its historical mean (-6.5% ~ +12.1%). This is a good indicator of investment risk and is still within an acceptable range. With the city's sound economic standing point and strong demand for residential property, we expect the residential property prices for the mass and luxury markets to increase by 8-10% and 3-5% respectively in 2018.
Optimistic outlook for office
Since 2017, investment in office spaces surge as prices continue to escalate to reach new record highs, fuelled by record-breaking sales in the Hong Kong market. Grade A office showed a six-month growth rate of 4.7% in February 2018, lying within the standard deviation of its historical mean (-10.9% ~ +16.7%), implying the price volatility is still within an acceptable range. In 2018, office investors remain cautiously optimistic, with Grade B office buildings surrounding Central such as Admiralty and Wan Chai showing the potential to lure investors with value-added opportunities. Prices for Grade A offices are expected to increase by a further 10% in 2018.
Industrial: 2018 spells growth for the sector
The government's forthcoming Industrial Revitalisation Scheme 2.0 has driven renewed investor interest in industrial properties. In February 2018, Colliers recorded a six-month growth rate of 5.4% - within the range of the standard deviation (-6.4% ~ +12.1%), showcasing more room for potential growth in coming months. With expanding e-commerce and external merchandise trade, prices for warehouses and flatted factories will go up by 8-10% per annum on average between 2018 and 2022. Vacant warehouse spaces will also continue to be hard to find in 2018, reflecting high demand and a current lack of new supply.
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