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HONG KONG: The Hong Kong residential market is in a robust upward trend with housing sites fetching high prices in recent land auctions and individual residential developments registering record high transactions.
According to Colliers International Hong Kong, vendors were seen raising their asking prices by 3% to 5% and in some cases, withdrawing their units from sale after the latest government land auction of the three sites in Mid-Levels, Kowloon Tong and Yuen Long.
With strong market sentiment, increases in asking prices and rentals were seen across the board. As of end April 2011, the average luxury residential prices have risen 5.4% year-to-date (YTD) following a year-on-year increase of 16.3% in 2010, while the average luxury residential rentals have risen 5.2% YTD after increasing 15.4% in 2010.
According to Ricky Poon, executive director of residential sales at Colliers International Hong Kong, the average luxury residential prices have already exceeded the peak in 1997 by 41%.
However, the slowdown in residential sales activity over the past quarter revealed a growing uncertainty in the market. Since 4Q10, several tightening measures have been in place including a lowering of loan-to-value ratio and the government’s announcement of a special stamp duty on residential sales transactions. During the period between November 2010 and April 2011, the number of overall residential transactions dropped significantly by 42%.
In the “super-luxury” residential sector (referring to the luxury property transacted at over HK$100 million or RM39 million), the number of sales transactions increased 27.3% quarter-on-quarter (q-o-q) in 1Q 2011. The trend shows that super-luxury residential sales were not influenced much by the measures. In contrast, the sales of luxury property of over HK$10 million registered a drop of 11.5% q-o-q over the same period.
“One of the driving forces for the robust luxury residential price growth can be attributed to the strong demand from wealthy Mainland Chinese buyers, who represent about 40% of total buyers in the ‘super-luxury’ sector.
“Hence, besides bank tightening and the government’s cooling measures, a reverse or slow down in the ‘hot money’ from the Mainland to Hong Kong may also affect the residential price growth. The question now is when this will happen if it does happen. And when it does, there is a high possibility that the market will be effected,” said Poon.
In addition, recent trends in residential mortgage rate change and the banks’ perception to market risk are also two areas that should be addressed in the market.
Simon Lo, director of research and advisory at Colliers International Hong Kong, said: “Some banks are also anticipating higher price volatility in 2011 and have started adopting more stringent ‘stress test’ methods and more conservative valuations resulting in some cases which saw valuations at 10% to 15% below asking prices. This in turn, may potentially affect the residential sales activity growth especially that by the end-user demand.”
“Having said that, with the continuous low interest rate environment over the near term and limited new supply in the market, the price of luxury residential market is expected to continue its upward climb to 6% in the next 12 months.” Lo said.
This article appeared on the Property page, The Edge Financial Daily, May 27, 2011.
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