27 March 2012

13% drop in prices on course as uncertainty still looms even after CE election

Since the government’s implementation of the special stamp duty at the end of 2010, Hong Kong’s residential sales transaction volume has spiraled downward. Coupled with the gloom from the European sovereign debt crisis, the Hong Kong government’s determination to increase residential supply, and lowering of the effective loan-to-value ratio by banks, the number of residential sales transactions retreated further by over 50% between June 2011 and January 2012 to 3,507 – a number near the all-time low record.

After months of low-lying housing sales volume, the number of transactions rebounded to 3,884 in February 2012. On the luxury residential segment, activities remained quiet - in particularly the most expensive tier with prices over HK$80 million – recording 37% below the long-term average.

While some see the sudden euphoria as a turning point, Ricky Poon, Executive Director of Residential Sales at Colliers International says there are logical explanation to the spike, such as pent-up buying demand accumulated over the past six months and the overall lower mortgage rates offered by some banks earlier this year.

“With transactions picking up in February, some individual vendors have regained confidence and increased their asking prices with a small percentage more aggressive than the rest. This in turn sparked a softening in transactions since mid-March as potential buyers backed off in unison on a lack of solid market fundamentals to support the price increase coupled with uncertainty leading to the chief executive election,” comments Poon. 
Poon further adds that the appointment of the new Hong Kong leader on last Sunday will likely raise a wait-and-see attitude amongst potential buyers brought about by mixed market sentiments and uncertainty over new housing policies which the new chief may implement. “With these factors in tow, we expect sales volume to remain flat or soften mildly in 2Q 2012.”

Simon Lo, Executive Director of Research & Advisory, Asia, concurs with the possibility of Poon’s prediction, “The newly elected leader will undoubtedly be the center of attention especially on the impact his appointment will have on the Hong Kong residential market. However, as with the previous two chief executives, it takes an average 6 to 12 months after the appointment of a new chief for the market to see some actual trends.”

Currently, prospective buyers in the residential market are dominated by end-users, estimated at 85%. Mainland Chinese buyers constitute about 30% of the whole pie, a reduction compared to the 40% reported in mid-2011.

On the luxury residential sector, research from Colliers International indicates a downtrend at the end of 2011, which edged down further 3.6% QoQ to HK$16,295 per sq ft as at the end of February 2012. 
“As both global and local economy continue to be clouded with uncertainties, coupled with the government’s continual residential land supply and mixed sentiments before the coming of new government, potential buyers are generally conservative when making their purchase decision and eventually create a pressure for vendors to reduce their premium asking prices,” says Lo.

“Over the next twelve months, luxury residential prices are projected to see downward pressure and likely tank 13%.”

On the leasing front, as the market is expecting another round of downsizing in individual financial institutions, a weakening in leasing demand is expected. Latest research by Colliers International projects a 6% drop over the next twelve months in luxury residential rents.

Colliers International | Myanmar 11/F, Units 10-12, Sule Square Office Tower, 221 Sule Pagoda Road, Kyauktada Township, Yangon, Myanmar​ | Tel: +95 9 314 916 78