Prices Continue to Soar in Capital-Flooded Market, Prompting Strong Interest in Home Purchases

  • Prices of representative home estates went up by 4-7% while general sales volume was down by a third from the average level in last quarter
  • Previously quiet sectors such as retail and hotel attracted more investors’ attention in Q1.

HONG KONG--()--Cushman & Wakefield, a global leader in commercial real estate services, reviewed today the performance of the residential and property investment markets of Hong Kong in the first quarter of 2017. After the government launched another round of cooling measures by raising the stamp duty in November 2016, buying costs increased, and home prices continued to soar, which drove down the home sales volume. The market sentiment was bullish as landlords and developers raised the pricing after a slew of residential development sites were recently sold for record prices. In the property investment market, the sentiment was equally active, with buyers' attention focusing on luxury residential, retail and hotel properties.

Since the launch of cooling measures last November, home sales as represented by Sales and Purchase Agreements (S&Ps - primary and secondary residential combined) have dropped from 6,739 in November to 3,550 in December and further down to 3,286 in January 2017, before rebounding to 4,079 in February. Compared with the average S&P volume of Q4 2016, the average during the first two months of 2017 has decreased by more than 30%.

The price trend has given a clue to the drop in sales volume. Since the beginning of 2017, prices have continued to rise in both the mass and the luxury sectors. As of March, the average price of a City One Shatin unit was HK$14,700 per sq ft, up by 6% year-to-date. During the same period, the average price of a Taikoo Shing flat also rose by 4% to HK$17,100 per sq ft, whereas at Residence Bel-Air the average price rose by 7% to HK$23,300 per sq ft.

Mr Alva To, Cushman & Wakefield's Vice President, Greater China & Head of Consulting, Greater China, commented, "Home sales volumes have rebounded after the effects of the cooling measures have been absorbed, and the pace of market rebound, as shown by the rising home prices, is in line with our forecast. The market today is flooded with capital that is chasing after limited stock. While the government has repeatedly reassured the public of more new housing supply in the pipeline, it will still be some time before the units are able to be launched on the market. This, together with a lack of investment channels, means that home prices will still find support. Encouraged by the remarkable prices fetched in government land sales and by the heated market sentiment, both landlords and developers are bullish in pricing. Meanwhile, risk factors such as economic performance and interest rate hikes will not be so significant as to have an impact on the home market at this stage, because sound fundamentals still prevail, and the low interest rate environment will remain in Hong Kong for some time as local banks are unlikely to follow the Feds too closely, given their liquidity position. In view of a large pipeline of projects to be launched by developers, we believe that the home sales volume will rise further in the next quarter, supported by primary sales."

In Q1 2017 thus far, the property investment market has recorded 47 major transactions (each with a unit value of more than HK$100 million) with a total estimated consideration of HK$25.332 billion. Most of the transactions were in the luxury residential sector, which accounted for 53% of all major transactions. The heated sentiment extended from the mass market to the luxury market, with buyers actively making purchases of primary luxury residential projects while enjoying the many incentives offered by developers.

Office property remained a hot category for investors but there were few available options in the market. Thus, the entire sector (en-bloc and strata-title office sales combined) made up 11% of all major transactions. The retail sector, which has been quiet in recent quarters, picked up 17% of all transactions amounting to HK$2.67 billion in terms of consideration. Mr Kenneth Yip, Cushman & Wakefield's Executive Director, Investment & Advisory Services in Hong Kong, commented, "In recent months more investors began to bottom fishing retail properties, as the prices of some projects have come down substantially over the course of the past year. Many transactions concerned shopfronts in non-core areas, which matched the changing pattern of consumption that has favored the sales of daily basic goods."

Another target of bottom fishing for investors was the hotel sector, which was another highlight in the investment market in Q1. Mr Yip said, "Buyers, especially local investors, have been eyeing the hotel sector since last year, and the market has suddenly turned active with a total of five transactions undertaken since January. Buyers found the current pricing of hotels attractive enough, and they were also encouraged by the news that tourist arrival figures have begun to stabilize. The drop in tourist volume eased from August to December last year, and in January 2017 the numbers rebounded. We expect investors will continue to pay attention to both retail and hotel sectors to seize on favorable investment opportunities."

About Cushman & Wakefield

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop and live. The firm’s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. Across Greater China, there are 20 offices servicing the local market. Cushman & Wakefield is among the largest commercial real estate services firms with revenues of US$5 billion across core services of agency leasing, asset services, capital markets, facility services, global occupier services, investment & asset management, project management, tenant representation and valuation & advisory. To learn more, please visit www.cushmanwakefield.cn or follow us on LinkedIn (https://www.linkedin.com/company/cushman-&-wakefield-greater-china)

Contacts

Cushman & Wakefield
Elisa Yiu, +852-2507-0637
Associate Director
Marketing and Communications, Hong Kong
elisa.ky.yiu@cushwake.com
or
Creative Consulting Group
Peggy Mak, +852 9482 3144
peggy.mak@creativegp.com
Penn Leung, +852-6077-7342
penn.leung@creativegp.com

Contacts

Cushman & Wakefield
Elisa Yiu, +852-2507-0637
Associate Director
Marketing and Communications, Hong Kong
elisa.ky.yiu@cushwake.com
or
Creative Consulting Group
Peggy Mak, +852 9482 3144
peggy.mak@creativegp.com
Penn Leung, +852-6077-7342
penn.leung@creativegp.com