New property completions to balloon 34% in 2013

Most completions will come from New Territories, says analyst.

According to Maybank Kim Eng, the Rating and Valuation Department has issued the Preliminary Findings of the HK Property Review 2013.

It noted that new completions is expected to grow 34/17% in 2013 and 2014 respectively.

Here's more:

Key highlights include: 1) Completions in 2012 were about 10,150 units, 7%  higher than the level in 2011. 49% of the completions were in the New Territories, 34% in Kowloon and 17% on Hong Kong Island;

2) The number of units forecast for completion in 2013 and 2014 are around 13,550 and 15,820 respectively; 3) The vacancy ratio for large units (1,076 sq ft of GFA or larger) has risen to 10.7% (9,140 units), a historical high. 

Completions to rise significantly over the next two years. Most completions from now to 2014 will be in New Territories. In 2013, close to 83% of completions will come from the New Territories, with Tseung Kwan O and Yuen Long each providing 25% of the new supply.

In 2014, the share of completions from the New Territories will fall to 56%. Yuen Long and Tsuen Wan will contribute 27% of the completions in total. 

Numbers largely in line with expectations but still below the target annual takeup. The completion of 15,820 units in 2014 would constitute a 6-year high, and would only be 5% below the 10-year average of 16,666 units p.a..

The completion of small units will rise 59% YoY to 12,270 in 2013 and make up 91% of total completions. We expect that the greater proportion of smaller units will relieve demand from first-time homebuyers.

Despite rising 34% and 17% YoY over the next two years, the number of completions in 2014 would still be below the 10-year annual average takeup of 20-23k units. 

Developers with small unit-focus will be less vulnerable, in our view. The historically high large-unit vacancy rate of 10.7% illustrates mainland purchasers’ willingness and ability to hold property without leasing them, we believe.

While we do not think this will post a significant threat to the property market as a whole, avoid developers focused on luxury units such as Kerry Props (683) and Wheelock (20).

Developers with faster asset churn or a small-unit focus, such as Cheung Kong (1) and Henderson Land (12) respectively, are expected to outperform peers in short run, in our view.