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Residential property prices fall in Hong Kong amid economic outlook concerns

Although the mid October release of Hong Kong’s 2011/12 Policy Address cleared some uncertainties in the local residential property market, concerns remain, the latest report from Knight Frank suggests.

It points out that potential homebuyers, fearful of an economic downturn, were reluctant to purchase flats. Meanwhile, credit tightening measures implemented by local and mainland banks have made it more difficult for homebuyers to obtain mortgage loans.

As a result, residential sales volume dropped 3.7% in October month on month, reaching its lowest level since February 2009, according to figures from the Land Registry. Only 268 luxury flats worth HK$10 million or above were sold in October, a drop of 15.2% month on month.

Amid the poor market sentiment, home owners of mass residential units became more willing to lower their asking prices resulting in a dip in home prices for this sector. For example, a high floor flat at Tsuen King Garden in Tsuen Wan was sold for HK$2.83 million, 9% lower than the asking price, while a 482 square feet high floor unit at Greenery Plaza in Tsing Yi was sold for HK$2.51 million, 12.8% lower than its asking price.

Overall, mass residential prices dropped about 2% in October. However, luxury residential prices dipped a mere 0.5% last month, as only individual local and mainland home owners running short of cash in the volatile stock market were willing to sell at discounts.

For example, one mainland owner of two houses at Valais in Sheung Shui reportedly sold one of them at HK$18.5 million, HK$2.16 million below the acquisition price. Meanwhile, a 2,312 square foot flat at 15 Ho Man Tin Hill Road was reportedly sold for HK$74 million, about 5% lower than the previous asking price of HK$78 million.

The primary market performed relatively well in October, with newly launched projects receiving fairly positive feedback, the Knight Frank report also found. According to the developer of The Wings in Tseung Kwan O, 40 units were sold in the first three hours of launch.

A five bedroom duplex named Luminous Sky Pool Mansion on the top floors of Tower 3 of The Wings named Luna Diamond was sold for HK$20,000 per square foot, the highest price ever achieved in Tseung Kwan O. In Kowloon Tong, a special unit in One May Fair with a podium and a garden reportedly changed hands at HK$30,000 per square foot, breaking the per square foot price record for apartments in that district.

On the leasing front, landlords were willing to negotiate on their asking rents, but the take up rate remained slow during the traditional low season. Luxury rents fell by a faster rate of 1.9% last month, compared with 0.7% in September. Pokfulam witnessed the largest drop of 1.9%, followed by the Peak and Mid-Levels where rents dropped 1.6% and 1.4%respectively. Meanwhile, rents in Island South and Jardine’s Lookout /Happy Valley declined by 1.3% and 0.4% respectively.

Looking forward, the performance of Hong Kong’s residential property market will largely hinge on the global economy. Adverse effects of Europe’s sovereign debt crisis have started to emerge, reflected by a 3% year on year decline in total exports from Hong Kong in September, the first drop in two years.

The report predicts that uncertainties in the global economy will keep the volume of property transactions in Hong Kong at low levels by the end of the year. ‘We believe further corrections in home prices will be mild, unless the Europe’s sovereign debt crisis severely worsens. Luxury residential leasing activity will remain slow and rents may continue to drop until the next peak season,’ the report says.

The Policy Address proposed increasing residential land supply by reclaiming land outside Victoria Harbour, relocating existing public facilities and changing the usage of unused industrial and farmland. The government will also launch a new Home Ownership Scheme (HOS) and supply land with restrictions on the minimum numbers and maximum sizes of flats.
‘We believe such policies will improve the problem of under supply in the residential market in the long run, but the shortage of home supply will not be resolved in the short term,’ the report points out.

‘Meanwhile, the government’s proposal of regulating first hand flat sales by use of legislation, enforcing regulatory requirements on sales brochures, price lists, floor area information, show flats, transaction information and sales arrangements as well as enforcing penalties and implementing an enforcement mechanism, could improve transparency in the market, which we believe will benefit the market and facilitate market transactions in the long term,’ it adds.