Hong Kong’s property market has witnessed a surge in first-hand and second-hand residential transactions following the scrapping of all cooling measures. In April alone, 8,551 transactions were recorded, representing a significant month-on-month increase of 115%, the highest since October 2012.
The Rating and Valuation Department recently published data on the price index of private domestic properties (all classes), revealing a monthly increase of 0.3% in April. However, the rebound was narrowed against +1.8% in March, limiting the year-on-year housing price correction to 12.8%. Additionally, the housing rental index witnessed a second consecutive month of rise in April, rebounding by 0.9% month-on-month, resulting in a year-on-year increase of 4.6%.
Developers have taken advantage of the lifting of cooling measures by actively launching new projects at restrained prices, often below market value or at competitive levels compared with the second-hand market. This is enticing a lot of end-users and investors to enter the market.
It is also worth noting that the strategy is being applied to various first-hand projects, from developments near MTR stations to estates in rural areas. Even developers who used to offload their stock at premium prices in the past are offering buyers units at market prices to ensure sales.
Following recent policy changes, the release of purchasing power, including pent-up demand from residents and buyers from the Mainland, is expected to cause an increase in overall market transactions this year. It is projected that transactions will rise by 43% compared to the previous year, reaching 63,000 transactions – which was the five-year average between 2017 and 2021.
Notably, the rental index has resumed an upward trajectory. It's worth noting that January and February represent the traditional off-peak rental season, during which rental negotiations typically allow greater bargaining power for the tenants. However, entering the current peak season, rental performance is expected to continue to pick up further.
This phenomenon reflects a significant deviation from the usual parallel decline in rental and housing prices. It suggests a persistent demand for residential properties, potentially influenced by the Hong Kong Government's recent relaxation of immigration and talent admission schemes, leading to increased demand from Mainland students and talent. Whether these long-term tenants will become future homebuyers will depend on several macro factors including interest rate trends, Hong Kong's economic environment and tenants’ job stability.
The Hong Kong property market is expected to be primarily driven by first-hand sales for the rest of the year. Data from the Housing Department reveals a total of 21,000 unsold completed first-hand residential units, representing a 20% year-on-year growth, and a record high of 72,000 unsold units under construction, as of the first quarter of this year. This indicates a significant inventory of completed and upcoming developments, reinforcing the dominance of first-hand supply in the market.
However, amid intense competition and a good supply of first-hand stock, developers are anticipated to maintain a conservative pricing strategy throughout this year. Consequently, this may exert a downward pressure on prices and transaction volumes in the second-hand market. Distress sellers might be compelled to offer greater discounts to attract buyers, resulting in further pressure on overall prices.
Last but not least, interest rates will continue to be a pivotal factor influencing property prices. Recent hints from the U.S. Federal Reserve suggest that rates may either persist or experience a slight decrease this year. While this impacts market expectations, the sustained high rates constrain capital inflows. Should the rate cut be delayed, as Colliers predicts, a potential 5% to 10% decline in overall property prices throughout the year is anticipated.
Meanwhile, the stock market remains another key factor influencing housing prices. Generally, the performance of housing prices trails the Hang Seng Index by three to six months. With the stock market making a comeback between February and May, this could help underpin the real estate market in the next quarter.
However, given that Hong Kong’s stock market is highly interconnected with the global financial system, external trends and events such as the upcoming U.S. presidential election could significantly influence its performance. This could impact the housing price trend, which needs to be closely monitored.
Kathy Lee, Head of Research, Colliers