Cooling measures take effect in Hong Kong as prices and rents fall

Hong Kong luxury house prices and rents fell in July as government cooling measures continued to have an impact on transactions, according to the latest monthly report from Knight Frank.

It points out that a series of anti speculation policies from the Hong Kong government, including the doubling of Stamp Duty in February for all transactions over HK$2 million, has had the desired effect on the residential property market.

Investors and mainland buyers have retreated from the market. Indeed, the proportion of mainland Chinese buyers has dropped from around 30% in October 2012 to only 9.4% in January 2013 in the Hong Kong luxury market.

In July, prices in the luxury residential sales market dipped by 0.3%, while rents fell by 0.9% month on month.

The report says that although generally Hong Kong developers have no capital pressure, poor sales results in the first half of the year are forcing them to speed up the launch of new projects in the second half, to meet sales targets for 2013.

As a result, primary residential units were put onto the market at competitive prices, last month. According to the Sales of First Hand Residential Properties Authority, 18 residential projects providing a total of around 1,000 units were available for sale in July, the highest number since the implementation of The Residential Properties (First-hand Sales) Ordinance in April.

On the supply side, the latest statistics released by the Transport and Housing Bureau show that the number of new flats commencing construction surged 500% quarter on quarter, in the second quarter of this year, to reach 6,600 units, the highest number since 2004.

However, the number of units starting construction in the first half of 2013 still represented a drop of 24.5% year on year, as only 1,100 units commenced construction in the first quarter. Some 1,300 private residential units were completed in the second quarter, up 550% from only 200 in the first quarter.

With the government’s efforts to speed up the supply of private residential units, the imbalance of supply and demand may start to be alleviated, the report points out.

‘Government data show that 70,000 new units could be available in the next three to four years. Of these, about 60% will be small to medium sized units with saleable areas of less than 753 square feet, meeting the demand from first time home buyers,’ said Thomas Lam, director and head of research and consultancy in Hong Kong for Knight Frank.

‘However, residential supply will remain tight in the short term. With various cooling measures remaining in place, we expect the residential market to stay quiet and sales to fall about 10% in 2013. We believe mass residential prices will drop around 10%, while prices in the more resilient luxury sector will fall 5%,’ he added.