Home Prices Expected to Rise by 5% in Q2

• Residential market remained most active with total transactions rising by 69% y-o-y for January and February combined, and expected to jump by 73% y-o-y in Q1
• Investment into non-residential properties continues pickup commencing in Q4 2020, with retail and industrial properties remaining most favoured

HONG KONG SAR - Media OutReach^[1] - 11 March 2021 - Strengthened market sentiment helped boost Hong Kong real estate market growth in Q1, unleashing pent-up demand and transactions in both residential and investment markets. The wealth effect was amplified by the stabilizing COVID-19 situation locally and the eagerly awaited roll-out of a vaccination program, both considered prerequisites for sustained economic recovery.

Residential Market

The Q1 period displayed a major rebound in the residential market, driven mainly by the cash-rich condition of local buyers. Total Sales and Purchase Agreements (S&Ps) rose 66% y-o-y to 14,200 cases in the first two months of Q1 2021, while residential transactions leapt 69% y-o-y to 10,687 cases in the same January -- February period. For March 2021, we expect the total S&Ps would go up to 9,000 cases, bringing the quarterly figure to 23,200 cases. This represents a remarkable growth of 74% y-o-y, or 7% increase q-o-q.

Amidst the fourth wave of COVID-19, home prices dropped in the face of surging confirmed cases between December 2020 and January 2021. Taking Taikoo Shing as an example, the average price declined by 8.3% during the period. In February, with early arrival of vaccines, strong pent-up demand from predominantly Hong Kong buyers, a booming stock market and other positive factors, transaction volume and home prices quickly bottomed out and began to rebound (Chart 1).

The market is adapting to the post-pandemic new normal. From a macro perspective, the market is currently imbued with healthier fundamentals compared with previous periods of market turmoil as a result of the SARS outbreak, the global financial crisis, and other disruptors (Chart 2).

Mr Alva To, Cushman & Wakefield's Vice President, Greater China & Head of Consulting, Greater China, commented, "The wealth effect is being driven especially by gains from the stock market, quantitative easing measures, and a high 90% loan-to-value ratio, and the rebound in property sales is now in a growth momentum. The residential market is rebounding faster than expected, and we expect home price to rise by 5% in Q2 2021. However, we would advise buyers to remain cautious on the economic fundamentals throughout 2021. With the unemployment rate at 7% by January 2021, and is still increasing with high speed, this will seriously impact on the purchasing power and intention to purchase. Moreover, an anticipated overall economic recovery in the second half of 2021 may also be impacted by the still rocky U.S.-China relationship and local and geopolitical uncertainties."

Investment Market

Investment sentiment has been on a recovery track since Q4 2020, following the rescinding of the Double Stamp Duty (DSD) requirement on non-residential properties (Chart 3). The recovery momentum sustained the performance of the investment market in Q1 2021, with retail and industrial properties remaining the most sought-after asset classes over the near term. Investments into the hotel sector remained muted with the continuation of border closures between Hong Kong and mainland China and the rest of the world. Yet, with the number of confirmed COVID-19 cases subsiding and stabilizing, anticipation for a full opening of regional and international travel may encourage tourism and retail recovery in the short-run. 

Mr Tom Ko, Cushman & Wakefield's Executive Director, Capital Markets, Hong Kong, concluded, "Major investment transactions (transactions over HK$ 100 million) are expected to remain at a similar level of Q4 2020. Luxury residential transactions still contributed to 61% of total investment volume, as a result of the favourable loan-to-value (LTV) ratio for property investment. The abolition of DSD on non-residential property investments, on the other hand, has facilitated investment into retail spaces and industrial assets in Q1. With these favourable factors, together with the recent pilot scheme to standardize land premium and the influx of deep-pocketed global real estates' funds in Hong Kong, we expect an even more positive market trend to prevail in the upcoming quarter."

References

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