26 April 2012

13% decline in price forecast to stay firm over next twelve months

Following active residential sales activity stimulated by pent-up demand accumulated in the second half of 2011 and the banks’ enthusiastic actions in its lending policies at the beginning of 2012, Hong Kong’s residential market saw a remarkable jump in sales transaction volume in 1Q 2012. However, after a leaping start, signs of a slowdown were detected in the following period.

According to Hong Kong Monetary Authority, the number of new mortgage loans that have been approved but not yet drawn picked up significantly by 47.3% month-on-month (MoM) to 4,829 between January and February and 98.5% month-on-month (9,589) between February and March 2012. However, the number slowed to 7,975 in April 2012, representing a decrease of 16.9% MoM.

Similarly, the number of sales and purchase agreements of residential building units - reflecting the overall transaction volume in the residential market - increased robustly by 192.4% MoM, or 8.6% year-on-year (YoY), to 11,358 in March 2012. The number then slowed to 8,217 and 8,349 in April and May 2012 respectively, but it was still above the monthly average of 7,173 units over the past 18 months.

“The flurry of sales activity in the first quarter can be explained by the pent-up demand from the last half of 2011 and renewed vigour by the banks’ mortgage department. Developers were also seen to launch their new residential developments with prices set close to those in the secondary market, which stimulates sales activity,” said Gregory Tam, Associate Director of Valuation & Advisory Services at Colliers International Hong Kong. In March 2012, the number of sales and purchase agreements of residential building units was the highest since the implementation of Special Stamp Duty in November 2010.

“The sharp increase in sales transaction volume in March 2012 was mainly driven by the mass market residential transactions with prices ranging from HK$1,000,000 to less than HK$10 million, contributing 90% of the overall volume. The luxury residential transactions with prices at HK$10 million or above represented only 10% of the whole pie, a clear indication of a volume stagnation,” said Ricky Poon, Executive Director of Residential Sales at Colliers International Hong Kong.

Poon said that generally, the luxury residential sector’s sales volume was relatively weak in 1Q 2012 compared to one year ago. The residential sales volume in the traditional luxury districts i.e. The Peak, South Side and Mid-levels in 1Q 2012 fell by 37.5% YoY for transactions with prices of over HK$10 million, while those super-luxury residential transactions with prices of over HK$100 million recorded an even stronger decline of 42.9% YoY.

Although transactions for luxury residential were on the decline, Poon said prices registered a mild increase by 2% over the 3-month period between January and April 2012.

The price forecast however, is leaning towards a decline of 13% for the next twelve months according to Poon. “Amidst internal factors such as the uncertainty of housing policies by the new Hong Kong government, the traditional low season during the summer holidays, and the impact from external factors from the continued woes of the Eurozone crisis, luxury residential prices are projected to see downward adjustment pressure.”

In terms of buyer profile for luxury residential, investors made up a small portion of prospective residential buyers, estimated at 15% of the whole pie. The majority buying demand is from end-users including up-graders, expatriates and industrialists where part of it is attributed to Mainland Chinese buyers.

In line with the price expectation, luxury residential rents are projected to edge down 6% in the next twelve months due to weakening leasing demand by tenants from financial services sector.

Meanwhile, the Philippine residential real estate market continues its upward climb. In particular, luxury residential real estate capital values have been steadily increasing over the past year, posting a 10.4% year-on-year increase as of the first quarter of 2012. “Due to a lack of developable land in the Makati CBD coupled with strong demand from a growing expat community, luxury condo capital values continue to rise and are expected to perform well in 2012,” according to Julius Guevara, Associate Director and Head of Consultancy at Colliers International Philippines. Lease rates are also tracking above expectations, having an upward adjustment of 10% in the first quarter, and are expected to register an annual growth rate of 9% by year-end.


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