Apartment prices likely to remain high in Hong Kong despite promise of more supply

The Hong Kong government has signalled that it is determined to tackle the imbalance between housing demand and supply and confirmed that it will make residential sites available for construction.

This year’s land sale programme will inlcude 29 residential sites and the Hong Kong Monetary Authority has announced a seventh round of cooling measures for the residential small to medium sized apartments market which is likely to reduce transactions in the short term.

Most of the enw residential sites are likely to be in the New Territories and provide around 16,000 new homes. Taking into account land supply in general it is expected that some 19,000 units could be provided in 2015/2016, meeting the government’s supply target.

According to the latest monthly Hong Kong Review report from Knight Frank prices in the small to medium sized sector have been rising since 2010 despite the implementation of various cooling policies.

The international real estate firm thinks the latest measures may affect sales in the coming months but will have a limited effect on prices due to strong demand from first time buyers.

For residential properties worth HK$7 million or below, the maxium Loan to Value ratio (LTV) has been lowered to 60% from the previous 60% to 70%. For borrowers buying a second property the maximum debt servicing ratio has been lowered from 50% to 40%.

Office sales have also been slow. In February only a few major transactions were recorded, but the report says there were signs of investors returning to the market.

Grade A office prices in major business districts have not seen notable growth since the end of 2014. ‘However, rental growth is expected to support capital appreciation and we expect investors to continue to increase their focus on the office sales market this year,’ the report explains. 

In the office leasing market divergent trends have been seen. On the one hand finance, insurance  and medical beauty companies are continuing to expand and driving up office demand. But sourcing and logistic firms face intense competition from cities such as Shanghai and Singapore and prefer to relocate to reduce costs.

‘Looking ahead we believe Grade A office rents on Hong Kong island will continue to increase in 2015, mainly driven by strong demand from companies looking to expand in these areas with limited supply and where vacancy rates remain low,’ it concludes.