Hong Kong property markets likely to see stability in rest of 2016

Residential property sales in Hong Kong increased by 34.4% in September compared to the previous month to reach a four year high, according to the latest land registry data.

The pick-up in activity over the course of the month was primarily as a result of a strong rise in sales of new build property as more end users and investors entered the market, says an analysis from international real estate firm Knight Frank.

It explains that as a result, a number of new residential developments were oversubscribed in September. For instance, over 95% of the 545 units available in One Kai Tak, in Kowloon City, were sold within a week of launch, while The Papillion, in Tseng Kwan O, sold all its 857 units within a month.

In the land market, major developers continued to adopt aggressive bidding strategies to fend off increasing competition. ‘This is expected to continue as land sales tenders have become more competitive with developers from the Mainland increasingly active,’ the report adds.

It also points out that in order to reach the housing supply target, five government sites and two MTR projects, capable of providing 4,600 flats in total, will be put up for tender in the coming three months.

Knight Frank predicts that home prices are set to remain stable for the rest of 2016. ‘Despite abundant housing supply and a potential interest rate hike, strong residential demand and developers’ competitive sales packages have resulted in a significant rebound in transaction volumes,’ it adds.

The report also looks at the commercial market in Hong Kong and says that the Grade-A office leasing market remained subdued on Hong Kong Island, as leasing activity was limited by the lack of availability.

As a result, rents continued to increase in most Hong Kong Island districts amid the low vacancy rates. Expansion demand was weak and leasing activity also slowed in September in Kowloon with fewer transactions than in August.

The report explains that the key demand driver remained tenants relocating from Hong Kong Island for expansion or consolidation, attracted by the availability of large space at a lower cost.

‘Given the abundant supply, landlords offered deep rental discounts or other incentives to attract and retain tenants. This means options will become more attractive to tenants and we expect leasing transaction numbers to rebound in the last quarter of the year,’ the report says.

The office sales market remained buoyant as Henderson Land agreed to sell its Golden Centre office building in Sheung Wan for HK$4.4 billion, which represents a unit price of approximately HK$28,000 per square foot.

The report points out that optimistic sentiment also spread to the strata-title market. For example, three mid floors in Convention Plaza Office Tower in Wan Chai were sold for HK$1.39 billion.

‘Looking ahead, we expect the rental polarisation to continue. Given the tight availability, Grade-A office rents in core areas are expected to further increase in the coming months. However, decentralised areas, particularly Kowloon East, are likely to face rental pressure with more supply coming online,’ the report concludes.