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HK residential property market strong despite slower sales

Strong consumption, corporate expansion, sustained low interest rates and low space availability have all contributed to the growth, the Hong Kong Mid-Year Property Review report published today (Thursday July 14), shows.

It points out that over the past 12 months the Hong Kong government have been imposing austerity measures to better manage overheating risks in the residential sales market. The combined impact from the implementation of a Special Stamp Duty and the higher barriers set for potential buyers through lower loan to value ratios led to a relative slowdown in sales market momentum in the first half of the year.
A rounded total of 55,200 residential sale and purchase agreements were recorded, reflecting a 16% drop from a year earlier. However, an average of 9,200 transactions per month during the first half of the year is still considered healthy compared with the levels previously achieved in 2005, 2006 and 2008 at 8,600, 6,800 and 8,000 transactions per month, respectively.

For properties at HK$20 million or above, a total of 1,260 transactions (preliminary) were recorded, a fall of 33% compared to the second half of 2010, although it went up 7% on a year on year basis. These transactions added up to a total consideration of HK$59.4 billion, down 20% compared to the second half of 2010 but up 11% year on year.

Despite a slowdown in sales volume, capital values of luxury residential properties increased 16.2% during the first half of 2011. In the leasing market, rents for luxury residential properties also trended up by 4.9% over the same period, mainly as a result of sustained leasing demand from corporate expatriates.

The first half of 2011 saw capital values for mass residential properties increasing by 10.1% due mainly to the combined results of rising household incomes, sustained low holding costs and a tight vacancy market environment. A slowdown in sales momentum, coupled with the tight supply situation, has led to a thinner sales volume in the primary sales market. In the first five months of 2011, a total of 4,700 new units were sold in the primary market, compared with 13,600 units sold in the full-year of 2010.

In spite of the relative slowdown in the sales market, developers remained active in bidding for greenfield sites. Eight residential sites were launched and sold by the government fetching a total of HK$20.4 billion. These sites, which are mainly due for completion in 2015/2016, will have a potential building capacity of about 800 units.

‘The latest round of loan to value ratio restrictions introduced in June led to a relatively quiet sales market towards the end of the first half of the year as end users and upgraders have increasing difficulty in moving up the housing ladder and improving their living environment,’ said Joseph Tsang, managing director of Jones Lang LaSalle Hong Kong.

‘These measures are there only to reduce liquidity in the mass and medium residential sales market without affecting much on existing property owners and therefore will hardly lead to falling prices even though local rates for new mortgage loans have started to edge up in the recent months,’ he explained.

Looking ahead in to the second half of the year he sees some market risks rising but not at hazardous levels. ‘Despite the recent marginal rise in effective mortgage rates, the low holding costs remained intact. In view of the higher loan to value ratio requirements and the growing uncertainties in policy and macroeconomic risks, we expect sales volume to remain low for the rest of 2011 while rents are expected to catch up on the back of some buy to lease switches,’ he said.

‘There is also a low chance to see future supply rebounding until 2015/2016, providing strong support to capital values in the foreseeable future,’ he added.