30 December 2014 - Despite a slight recovery this year, Hong Kong’s property market is still under the influence of the government’s cooling measures which are expected to continue in 2015, as mentioned in Knight Frank’s latest forecast report.
1. Continued heat in primary sales
The total number of transactions has increased by 18% to 60,000 in 2014, but is still 56% lower than in 2010 before the introduction of cooling measures. Among the 60,000 transactions in 2014, 26% are attributed to the primary market, which used to account for only 10-16% of total sales in previous years. Aggressive discounting strategies by developers have proved to be successful in attracting more purchasers to new developments in 2013-2014.
2. Focus on smaller to medium sized units
In 2014, the proportion of sales of smaller to medium sized properties (below 1,000 square feet) was 90%, of which 61% are smaller units below 500 square feet. In terms of transaction value, 67% of total sales were between HKD3-10 million, while investments in the luxury market were relatively suppressed. “With the implementation of the Double Stamp Duty, prices in the luxury residential market have experienced mild downward pressure this year and are expected to drop modestly by less than 5% in 2015, while mass residential prices could remain stable given strong demand for small and medium-sized flats” said Thomas Lam, Head of Valuation & Consultancy at Knight Frank.
3. Affordability ratio will surge
According to Knight Frank’s research, the affordability ratio (price-to-income ratio) in Hong Kong is now about 60%. If the mortgage rate is lifted by 200bps (2%) in 2015, the affordability ratio may rise to over 70%. However, they believe an interest rise of less than 300bps (3%) will not bring about a significant impact on Hong Kong’s residential market.
4. Main supply in the New Territories
In the coming years, more than 50% of new home projects for sale will be in the New Territories, including ‘The Beaumount Phase 2’ and ‘Hemera’ in Lohas Park in Tseung Kwan O. Kowloon’s supply will concentrate around Kai Tak, with a few new developments in more established districts such as ‘Fat Kwong Street Phase 1’ in Ho Man Tin, and ‘La and Star’ in Hung Hom. On Hong Kong Island, there will only be about 2,900 new units available, including ’53 Conduit Road’ in Mid-Levels West and ‘Mount Nicholson’ on the Peak.
Distribution of future residential supply in Hong Kong (2015-2019)
