The residential property market in Hong Kong looks set to overcome recent rate rises in the short term, a new analysis suggests, with prices set to rise by 5% in 2017.
The final two months of 2016 saw an increase in the Hong Kong Monetary Authority’s base rate to 1% and the introduction of a 15% flat rate for stamp duty but international real estate services company JLL does not expect these measures will be enough to lead to a broad based correction in residential prices.
Although prices may soften over the near term, JLL is forecasting capital values to rise by up to 5% in 2017, with luxury properties outperforming the mass residential market. This will be higher than the 2.4% price rise recorded in 2016.
Joseph Tsang, JLL Hong Kong’s managing director, attributes the market’s resilience to strong pent-up demand among first time buyers, low mortgage rates and a the large number of cash rich buyers in the market, including mainland Chinese.
He believes that interest rates and mortgage lending rates would have to rise significantly, and the loan to value ratio would need to be cut further, before owners come under pressure to sell their properties at lower prices against a backdrop of tight housing supply.
He pointed out that banks have already been offering mortgage cash rebates of up to 1.4% on total mortgage loans and a reduced number of transactions, particularly in the secondary market, may press banks to lower their mortgage rates further to capture market share.
‘The recent rate hike by the US Federal Reserve is unlikely to have a significant impact on housing prices in Hong Kong because local banks have limited room to raise their lending rates amid stiff competition,’ Tsang said.
According to Denis Ma, head of Hong Kong research at JLL, a number of banks are already adjusting spreads to lower mortgage rates and while rising interest rates will eventually weigh on property prices, he expects this to be only later on in the cycle.
‘The primary market is expected to continue to drive momentum in property transactions as developers are forced to offer purchasers stamp duty rebates in order to entice them to buy their properties,’ Tsang explained, but added that some developers might also have to provide financing, meaning they will also have to act as a bank by lending money to the purchaser.
‘Considering all these subsidies, costs for developers could be very high, so they may offset the impact by putting up the price of finished units,’ he concluded.
JLL expects more launches of completed flats to surface at the start of 2017 given developers’ growing pipeline of projects and their need to meet sales targets. ‘Sales momentum should pick up, especially as developers use incentives to override the 15% rate move,’ said Ingrid Cheh, senior manager with JLL’s Hong Kong research team.
‘Once developers regain confidence in their sales strategies and buyers grow accustomed to the new measures we should see more flats being put back onto the market for sale,’ she added.
Areas undergoing major infrastructure improvements are expected to garner the most interest from potential buyers. Given the supply and demand imbalance, and the pre-sale nature of many new launches, the research team believes that there should be strong demand for residential flats in Kai Tak and the opening of the Shatin-Central railway line should coincide with the completion of the bulk of the supply in the area.
First time buyers are being enticed into the market by developers who plan to build a greater number of smaller units in the price range of HK$3 to HK$5 million in response to the government’s target of supplying 180,000 private flats in the 10 years to 2025.
Overall however, JLL anticipates the total number of residential property sales will decrease substantially over the near term to below the average monthly level recorded in 2016. With a new chief executive due to be appointed in March, it is also possible that the government’s measures to take the heat out of the Hong Kong’s property market could be revised.
