21 October 2016
Sales staff entertain prospective homebuyers at a new property development in Cheung Sha Wan last week. Photo: HKEJ
Sales staff entertain prospective homebuyers at a new property development in Cheung Sha Wan last week. Photo: HKEJ

Tug of war in HK housing market to end late this year

The Centa-City Leading Index rebounded last week as the housing market showed signs of improvement.

Sellers are becoming more confident because of the very limited number of flats available in the market.

However, overall transactions remain at a record low level, and over 40 percent of those who won the right to buy flats under the Home Ownership Scheme passed up the chance to do so.

The tug of war between buyers and sellers is likely to end late this year, when around 10,000 new flats will be launched.

Over the years the government has released a set of tightening measures to discourage short-term speculators and cool off the property market.

Given the limited investment options amid volatile market conditions, most property owners, who have strong balance sheets, are not in a rush to sell.

Also, Hong Kong’s economic growth has not deteriorated rapidly as expected, and the unemployment rate remains at a low level of 3.4 percent.

The US Federal Reserve has kept rates steady after hiking them in December last year.

Most importantly, Hong Kong still faces a structural housing supply shortage.

The vacancy rate touched a 25-year low of 3.7 percent in the first quarter of this year, and the supply peak is likely to arrive in the next two years.

That’s why housing prices remain resilient at such an exorbitantly high level.

Meanwhile, demand remains robust. More than 10,000 families live in subdivided flats in industrial buildings. However, the effective demand is in fact very weak given the ballooning home prices in recent years.

Starter-homes are still beyond reach for those who have failed to buy one in the past few years. The economic growth is muted and the government still holds a tight grip over mortgage loans.

Yet the market expectation has already changed. Most people believe there is limited upside for home prices and they would choose to stay on the sidelines.

There has been no massive new supply coming to the market in recent months. New home sales in the first half tumbled 33.5 percent to 5,382 units in the first half, the lowest in three years.

So far property developers have held back from cutting prices to boost sales, but they may have to do so in view of the coming flood of new supply.

New private home supply is expected to reach 18,000 units this year, the highest since 2005. It would hit over 20,000 apartments next year and in 2018.

New homes available for sale is expected to reach over 15,000 for the rest of this year.

As such, developers are expected to accelerate the offering of new flats by the year’s end.

They face a dilemma. Price discounts might trigger the collapse of the secondary market, but it’s not easy to absorb such a huge supply of new houses in the coming years.

This article appeared in the Hong Kong Economic Journal on July 29.

Translation by Julie Zhu

[Chinese version 中文版]

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