Top end property prices in Hong Kong set to fall by 15% this year

Stock market volatility and the interest rate rise in the United States has dampened investment sentiment in the property markets in Hong Kong, according to a new report.

Overall the luxury sector prices remained broadly steady, with apartment prices on Hong Kong Island and Kowloon recording some mild declines, says the latest briefing report from Savills World Research.

In the fourth quarter of 2015 primary sales rebounded after the quiet summer months but secondary sales declined further, and total transaction volumes of 10,000 were the lowest since 2002.

The report suggests that prime residential prices are on course to decline by 15% this year, with little positive news expected in the short term.

The data shows that sales sale on Hong Kong Island declined by 36% quarter on quarter in the final three months of 2015 while prime apartment prices fell 0.9%. However, there was still a 9.3% price growth over the year as a whole.

Mid-Levels, with the highest concentration of primary launches and future supply among all districts, saw prices remain relatively stable in the last quarter of 2015, with an 8% increase overall for the year. Supported by a few house sales on the Peak in the fourth quarter townhouse prices remained stable over the quarter and recorded an 8.3% increase overall in 2015.

Luxury transaction volumes in Kowloon and the New Territories also fell heavily by 62% and the report says this was due to a lack of significant new launches over the quarter, with most first-hand transactions coming from the remaining units of projects launched earlier in the year. Luxury prices in Kowloon declined by 1.4% while prices in the New Territories remained largely stable.

‘With investment sentiment dwindling, and few market highlights, many purchasers held off making investment decisions. This, coupled with the increasing number of newly completed luxury units being made available for lease amid declining rents, caused some potential purchasers to switch to the leasing market to avoid uncertainties over the next one to two years,’ the report explains.

Mass residential prices declined by 2.9% across the board in the fourth quarter of 2015 and the report says that unlike previous declines in 2012 and 2013 which were in response to various restrictive government measures and thus short lived, the residential market seems to have turned a corner, due to the uncertain economic environment, a further possible rate hike and a potential tightening of funding to reduce capital outflows.

In fact, while developers in general achieved satisfactory sales of primary projects in the quarter with 4,606 primary units sold, a 32% increase from the third quarter, this was mainly through providing more incentives, steeper price discounts, or both.

The result was that the secondary market was frozen out and the 5,563 secondary transactions recorded, as well as the 10,169 total transactions recorded, were both all-time quarterly lows since 2002.
Global economic uncertainties, stock market volatility and fears of further capital outflows from the local banking system will all contribute to weaker demand for both luxury and mass-residential properties, the report says.

‘In addition, higher than average supply levels in 2016 and 2017 will put further pressure on price levels. With restrictive government measures unlikely to be reversed in the near future, and short term economic stimulus non-existent, we expect both luxury and mass residential prices to decline by up to 15% over the next 12 months,’ the report points out.

The townhouse market on Hong Kong Island is also faced with diminishing demand and increasing supply in the short term. This may see prices declining by 5% to 10% this year, it adds.

However, the report also adds that the super luxury segment should prove more immune to the current market downturn, given the scarcity of stock and the number of ultra-high net worth individuals looking for trophy assets.

‘This is evidenced by the three HK$100,000 plus per square foot saleable deals done in the fourth quarter of 2015. We may see further record breaking deals concluded this year if similar prime products are made available to the market,’ it concluded.