Colliers Hong Kong report shows growing uncertainty in property market

The Hong Kong residential property market is on the rise with housing sites fetching high prices in recent land auctions and individual residential developments registering record high transactions, Colliers International Hong Kong (CIH) has reported. But a slowdown in residential sales activity over the past quarter revealed a growing uncertainty in the market.

Ricky Poon, CIH’s executive director of residential sales said this was proven in cases where vendors were seen raising their asking prices by 3-5 per cent 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, Poon believed that increases in asking prices and rentals were seen across the board. As of April 30, the average luxury residential prices have risen 5.4 per cent year-to-date (YTD) following a year-on-year increase of 16.3 per cent in 2010, while the average luxury residential rentals have risen 5.2 per cent YTD after increasing 15.4 per cent in 2010.

“The average luxury residential prices have already exceeded the peak in 1997 by 41 per cent,” he said.

But since 4Q 2010, several measures, such as bank tightening measures including lowering of loan-to-value ratio and the government’s announcement of a special stamp duty on residential sales transactions, have been in place to simmer down the housing boom. During the period between November 2010 and April 2011, the number of overall residential transactions dropped significantly by 42 per cent.

In the luxury residential market, the sales activity of property valued at different price segment varied. In the “super-luxury” residential sector (luxury property transacted at over HK$100 million or US$12.85 million), the number of sales transactions continued to increase 27.3 per cent quarter-on-quarter (QoQ) in 1Q 2011. In contrast, the sales activity of luxury property sold for over HK$10 million (US$1.29 million) registered a drop of 11.5 per cent QoQ over the same period.

The different trend explained that the super-luxury residential sales activity was not influenced much by the banks’ and government’s measures over the past few months, while that of the overall luxury residential property was relatively more sensitive.

“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 per cent of total buyers in the super-luxury sector,” said Poon. “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 feel some down effects.”

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, CIH’s director of research & advisory commented that the margins of HIBOR-based mortgage had seen an increase of about 50 to 100 basis points. “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 per cent 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 per cent in the next 12 months.” Lo concluded.

Source : Property Report – 30 May 2011

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