27 April 2012

Hong Kong’s residential market in 1Q 2012 experienced a pick-up in sales activity after the Lunar New Year, according to Colliers International Residential Market Report.

Due to the seasonal effect, the overall residential market was quiet before the Lunar New Year. The statistics from the Land Registry showed that the number of sales and purchase agreements of residential units fell to 3,507 in January 2012, close to the bottom as seen during the financial tsunami i.e. 3,264 transactions in November 2008.

However, the total number of residential sales transactions leapt notably to 11,358 in March 2012. This could be attributed to the upsurge in sales activity in the mass residential market and the banks’ more relaxed attitude towards mortgage applications due to decreasing demand for business loans and the need to achieve new mortgage targets in 2012.

“As banks were generous in offering more attractive terms and appraised values during mortgage negotiation process, pent-up buying demand that has been accumulated over the past six months in view of government measures to curb speculation in the residential market and the uncertain global economic outlook, has been released in 1Q 2012,” said Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International.

“Small and medium residential flats with less aggressive asking prices were the most sought-after in 1Q 2012. Also, both home buyers and sellers were more willing to negotiate in order to facilitate the sales transactions,” added Lo.

Compared to the mass market, the luxury residential market was relatively subdued, due to the impact of the maximum loan-to-value ratio requirement that allows up to 50% on properties valued at HK$10 million or above.

The average luxury residential price continued to drop by 2.19% quarter-on-quarter (QoQ) to HK$18,730 per sq ft as of the end of February 2012.

On the luxury residential leasing front, demand by tenants coming from the financial sector remained weak in 1Q 2012 as some financial institutions continued to downsize their operations in Hong Kong or cut housing allowances for staff at all levels. Meanwhile, there were more leasing enquiries coming from non-financial firms.

In view of the weakening leasing demand, landlords, especially those with larger and more expensive residential premises, were more flexible during lease negotiation process, while some were even willing to renew tenancy at a rent set two years ago. This explained the softening in the average luxury residential rent, decreasing 3.2% QoQ to HK$45.26 per sq ft per month, in the three traditional luxury districts – The Peak, South Side and Mid-levels - at the end of February 2012.

Looking ahead, as the global financial market outlook remains uncertain, landlords of luxury residential properties may be less aggressive in asking prices in order to facilitate transactions. Over the next twelve months, the average luxury residential price is projected to decrease by 13%. Meanwhile, the number of leasing transactions is expected to increase in the traditional active second quarter of the year but luxury residential rents are projected to follow the prices’ downtrend, falling 6% in the next twelve months.

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