19 September 2018

Price curbs take toll but HK property on firm ground

Hong Kong’s property cooling measures launched late last year are still a big dampener on sales but the sector’s underlying fundamentals suggest a brighter outlook.

DTZ Hong Kong managing director Alva To Yu-hung said the government’s price curbs have had an even bigger impact on overall property sales than the 2003 SARS virus outbreak.

To said that in the second quarter of 2003, at the height of the SARS crisis, about 6,000 properties were changing hands a month. Today just 4,000 or so homes are sold a month, less than half the figure from the start of the year.

The decline follows the Hong Kong government’s imposition in October 2012 of a new round of curbs to contain home prices, including a 10-20 percent special stamp duty on homes resold within three years and an unprecedented 15 percent buyers’ stamp duty on non-Hong Kong permanent residents.

The duties sent a chill through sales of high-end property, which attracts the highest transaction costs, To said.

He said some developers were trying to lift sales by offering to pay the tax for buyers, a growing trend that may soon push down offers on the secondary market.

But To was cautiously positive about the long term, pointing out a few key factors supporting demand.

On the demographic side, the number of births in the city has been high in recent years, cresting at about 90,000 annually and raising the prospect of couples trading up. About 60,000 couples are also getting married each year, double the level in 2003. Not all may be able to afford their own flats right away, but more parents are lending a helping hand to make sure their children can come up with a down payment for their first home, To noted.

Providers like QBE Mortgage Insurance (Asia) Ltd, host of the Hong Kong property market outlook lunch at which To spoke, are also helping cut upfront cash requirements.

The city’s low jobless rate is another major factor in the property market’s favor, To stressed. In 2003, the city’s unemployment rate rose to close to 9 percent whereas the figure was just 3.3 percent in the three months to October.

Despite a sharp drop in sales, property prices in general have held firm. And while the falls in prices have been steepest at the luxury end, small to mid-sized units have showed only a marginal decline. To attributed the small drops to the city’s limited home supply and low mortgage rates.

Mortgage rates are now just a bit over 2 percent, bolstering each owner’s capacity to hold. Average annual supply has been about 7,000 units in recent years, compared with 18,000 units between 2001-2010, according to To.

Speaking at the same event, Professor Raymond So Wai-man from Hang Seng Management College highlighted the extreme difficulty of increasing land supply, especially in downtown areas. This is partly because of strong resistance among environmental groups to land reclamation, one of the easiest ways to create new land.

So said the land development process is taking longer, almost 10 years in some of the worst cases. The plot ratio has also been coming down as the public demands a less congested living environment, he said.

– Contact the writer at [email protected]



EJI Weekly Newsletter

Please click here to unsubscribe