Sales of property in Hong Kong fell last month but prices are stable

The volume of residential transactions in the first half of 2013 in Hong Kong dropped 32.1% year on year, according to Land Registry but prices are stable.

The lowest sales volumes so far this year was recorded in April, when only 3,427 transactions were recorded, lower than the SARS affected period of 2003, says the July monthly report from Knight Frank.

Transactions in the secondary market dropped a substantial 38.8% year on year, in the first five months of 2013. However, after the government announced an interim scheme to allow eligible applicants’ to buy second hand Home Ownership Scheme (HOS) flats without paying the usual premium, the HOS and public housing market was stimulated.

Data from the Land Registry show that more than 75% of flats sold in June were small to medium sized units costing less than HK$5 million.
The report points out that in the first hand property market, the government announced that the presale period for uncompleted flats would be extended from 20 months to 30 months, meaning developers will be allowed to pre-sell unfinished projects 10 months earlier, to meet market demand. The change, which took effect in this month, is not expected to affect the demand and supply situation, as it will not increase actual supply volume.

Less than 500 units have been available for sale since the Residential Properties (First-hand Sales) Ordinance came into effect. ‘We believe more flats will be available in the coming months when developers, keen to accelerate sales in the second half of the year to fulfil annual sales targets, launch or re-launch projects after having modified or prepared their marketing materials to comply with the ordinance,’ says the report.

Even though the residential transaction volume dropped substantially in the first half of the year, prices showed no significant change. ‘Our records show that luxury prices dipped only 2.2% in April, but have since remained stable,’ the report adds.

However, long term investors and foreign buyers have been staying away from the market, which is now dominated by first time buyers and end users. ‘We expect this smaller customer pool to cause residential sales to fall about 10% this year, with mass residential prices dropping around 10% and prices in the more resilient luxury sector falling 5%,’ says Knight Frank.

There were a number of residential sales transactions worth over HK$100 million in June. A number of large houses were leased on the Peak and in Island South last month. Both the Peak and Mid-Levels recorded slight increases in luxury home rents last month. Jardine’s Lookout/Happy Valley recorded the largest drop in rents among major luxury residential districts.
Meanwhile, in the commercial sector the Grade-A office sales market remained quiet in June, but a few major transactions took place. The 12,790 square foot 38thfloor of Lippo Centre in Admiralty and the third to sixth floors of Citibank Plaza in Central totalling 66,317 square feet were both sold for over HK$30,000 per square foot.

However, grade A office prices in all major business districts dipped another 0.4% in June. They dropped about 2% in the second quarter of 2013.

The leasing sector remained stable, with transactions continuing to involve mainly relocation and renewal. Limited supply, exacerbated by increased relocation demand triggered by the redevelopment of Sunning Plaza in Causeway Bay and three Innotech buildings in Quarry Bay, placed mobility constraints on tenants, says the report.

With tenants continuing to take cost cutting measures, spaces with monthly rents of between HK$40 and HK$60 per square foot were in high demand for relocation purposes. Leasing activity was the most active at 28 Hennessey Road and Hysan Place in Causeway Bay and One Island East in Quarry Bay.

Major leasing transactions last month included a 17,520 square foot space at United Centrein Admiralty and a 10,231 square foot unit in Millennium Tower in Kwun Tong.

Grade A office rents in major business districts remained stable in June. They dipped about 2% in the first half of 2013.
In the office sales sector, the number of transactions has dipped dramatically since the implementation of the double stamp duty in February 2013. According to the Rating and Valuation Department, transactions fell from 412 in February to78 in April and the figure is expected to remain low in the coming months.

Central’s grade A office rents remained virtually unchanged in June and Knight Frank believed that they will remain largely stable in 2013.

The gap in rents between Hong Kong Island and Kowloon East is narrowing, as rents in Kowloon East have risen significantly following robust relocation activity in the past few years.

‘This gap reduction is expected to discourage Hong Kong Island tenants from relocating to Kowloon East, so we expect rents in Kowloon East to hover at their current levels until the end of 2013,’ the report explains.