Time for caution
In stark contrast to the buoyancy at the start of the year, Hong Kong’s red-hot residential market draws to a close with extreme caution as sales slump and prices fall.
The decline in sales comes amid growing concerns about policy risks, availability of credit and mortgage rate hikes.
The punitive special stamp duty of up to 15 per cent on homes bought and resold within 24 months, and the stiffer mortgage lending rules, especially for homes worth more than HK$6 million, have combined to put the brake on the runaway market.
In the first six months, home purchase sentiment remained relatively strong and prices continued to surge despite the government’s repeated pledge to impose cooling measures to alleviate the risks of a property bubble burst. According to the Centa-City Leading Index, average residential prices increased by more than 10 per cent in the first half and reached a record high around June and July. Compared with the 2008 trough, average home prices had nearly doubled, and in the luxury sector the price rally was even more stunning.
In the third quarter, growth began to ease. Prices fell in October, though the pace of their correction was confined to single-digit percentages in most properties, especially those in the city centre or on Hong Kong Island.
However, land auction results earlier in the year appeared to indicate an imminent market correction. At a government auction in June, a prime site on Borrett Road in the Mid-Levels was taken by Cheung Kong (Holdings) at a price of HK$11.65 billion, well below surveyors’ expectations of up to HK$15.2 billion. In August, a huge luxury site at Kau To Sha in Sha Tin was sold to the first and only bidder – a consortium comprising Kerry Properties, Sino Land and Manhattan Group – in just five minutes at another government auction at the opening price of HK$5.5 billion, 16 per cent lower than the lowest
market estimate. The bidding results reflected developers’ increased caution.
What has caught some people by surprise is perhaps the sharp plunge in sales in the second half of the year. According to Land Registry records and statistics provided by Midland Realty, secondary residential sales volumes stayed in the region of about 7,000 to 10,000 transactions per month in the first half of the year. Activity slumped significantly in the second half to fewer than 5,000 deals a month, with volume contracting to 3,939 in October and 3,727 last month.
On the contrary, the primary market has become more active, with 811 registered sales in October and 1,184 last month.
“The activity contraction has been very serious this time. The situation is even worse than what happened after the 2008 financial crisis,” says Buggle Lau, chief analyst of Midland Realty. “With a big drop in transactions, the secondhand property turnover rate for 2011 is likely to settle at to about 6.7 per cent, a sharp decline from 11.2 per cent for 2010. The special stamp duty and the lower loan-to-value ratio adopted by local banks are taking their toll on sales activity.”
According to Lau’s estimate, the transaction volume of secondhand residential properties this year will see a 40 per cent decline from last year.
But firsthand properties did rather well in comparison. Developers released several new projects for sale. Cheung Kong, Sun Hung Kai Properties and Sino Land are among the biggest property sellers.
The largest developments put on offer include Cheung Kong’s Festival City in Tai Wai and La Splendeur in Tseung Kwan O. Sun Hung Kai Properties was selling The Wings, also in Tseung Kwan O, and Imperial Cullinan in West Kowloon. Sino Land has released several projects such as One Mayfair in Kowloon Tong and Providence Bay in Pak Shek Kok.
Kerry Properties’ projects included Lions Rise in East Kowloon and Soho 189 in Sheung Wan, while Wing Tai Properties kicked-off the sales of The Warren in Tai Hang.
The primary sales market has been the focus of market attention in recent months as developers launched new projects at more reasonable prices, carrying a price premium of 10-20 per cent over secondary market values instead of a staggering 40-50 per cent premium at the start of the year.
“The residential market is in the doldrums now that transaction volumes have slumped significantly.
“There is no sign of speculators and homebuyers are very cautious about concluding a deal,” says Wong Leung-sing, associate director of research at Centaline Property Agency.
With policy concerns, increased mortgage rates and prevailing uncertainties over global economic growth, subdued buying sentiment and slow sales are expected to prevail in the short term.
Appetite for opulence
In an environment permeated by bad news for property markets globally, luxury housing is proving its mettle.
According to the latest Knight Frank House Price Index, which tracks the performance of the world’s mainstream housing markets, zero growth was recorded in the three months to September. This was the index’s weakest performance in two years, raising fears that it could enter negative territory by the year’s end.
The report cites mounting pressures on the global economy, with no end in sight to the euro zone debt crisis. Renewed fears of a double-dip recession, not just in Europe but around the world, have been reflected in the performance of global housing markets.
However, amid the gloom, luxury housing markets appear to be better insulated from this new weaker phase than mainstream markets. The report found this is due in part to the scale of global wealth generation, the continuing search for safe-haven investments and the growing divide between prime markets worldwide. Among those luxury markets that have slowed, Asia is the most affected, says Kate Everett-Allen, of Knight Frank’s international residential research team. “Here, the flood of cheap money brought about by a surge in domestic wealth and stimulus measures in the United States and Europe was followed by a wave of monetary tightening measures to squeeze inflation. As a result, the annual price growth of luxury homes in Hong Kong, Singapore and Shanghai now stands at 7.8 per cent, minus 6.8 per cent and 3.8 per cent, respectively, down from 19.7 per cent, 15.8 per cent and 29.7 per cent a year earlier.”
And it’s not over yet. After two years of growth, Knight Frank expects further cooling ahead. Its 2012 forecast is evenly split, with 44 per cent of the cities monitored forecast to see price falls and 44 per cent likely to experience price rises.
The other 12 per cent are expected to remain unchanged. Although a growth forecast in any city may seem surprising given the economic turmoil, Knight Frank says the critical factor is a lack of high-quality new supply. “We expect this to be particularly evident in London, Paris, Moscow, Nairobi and Kuala Lumpur,” it says.
Two hot spots, where prices are tipped to rise by 10 to 20 per cent next year, are Bangkok and Moscow. Other markets expected to grow are St Petersburg, Kiev, Beijing, Nairobi and Paris – all by 5 to 10 per cent – and London, Rome, Kuala Lumpur and Jakarta – by less than 5 per cent.
萊坊國際住宅研究部的Kate Everett-Allen指出，在豪宅價格增長放緩的地區中，亞洲地區最受影響。她說：「在亞洲，隨著財富急增，市場上充斥大量所謂的平錢，但在歐美政府出台了經濟刺激方案後，令通脹升溫，隨之而來的卻是另一輪的貨幣緊縮政策以抑製通脹。因此，按年計，香港、新加坡和上海的豪宅價格增長分別放緩至 7.8%、-6.8%及3.8%，比去年同期錄得的19.7%、15.8%及29.7%年增長率，大幅回落。」
雖然在目前的經濟環境下，預測任何一個城市的豪宅價格將出現上漲，看起來不大合情理。不過，萊坊認為導致價格上升的另一主要因素實為豪宅供應不足。 Kate Everett-Allen補充道：「供應不足令價格上升的情況，在倫敦、莫斯科、內羅畢和吉隆坡尤其顯著。」她更預測曼穀和莫斯科的豪宅價格在2012 年的上升幅度可達10-20%。