No recovery in sight for property market in Q1

Discounts up to 10-20% are slapped on homes as developers feel the squeeze.

The slowdown in Hong Kong's property market carried over into the new year as dampened sentiments permeated across all sectors in Q1 2019, according to a report by Colliers International. Rising economic uncertainty, fuelled by the US-China trade war and a weak stock market, kept aggregate investment activity low. 

Total office transaction value dropped a further 27% between Q3 and Q4 2018, whilst the residential market was particularly affected in the process as developers felt the squeeze on liquidity and began offering units at discounts in the range of 10% to 20% to attract buyers.

As a result, institutional investors turned to commercial sectors, where capital values have been less impacted by the slowdown, especially focusing on offerings in core districts for added stability, the report noted. Nonetheless, activities later in the quarter proved that demand persists across the city.

“Investors have regained confidence and responded positively to reduced prices, as evidenced by transactions in the core Central Business District (CBD), such as The Centre office building trading at a rate of 20% below records achieved in 2018, or sell-out performances on residential projects such as Sino’s Grand Central,” Antonio Wu, deputy managing director for Asia at Colliers International, said in the report. The firm further added that developers have been observed to cut 5% to 10% off the initial discounts offered on new rounds of first-hand unit sales.

Meanwhile, Hong Kong welcomed the much-anticipated Revitalisation Scheme 2.0, which is the latest version of an arrangement that ended in 2017 and encouraged repositioning of dated industrial buildings without subjecting them to a huge premium for change of usage.

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“The announcement made by the city’s chief executive Carrie Lam Cheng Yuet-ngor in her policy address reportedly helped shift focus to the sector, which will likely be the standout performer in 2019,” Colliers International commented.

The report further highlighted notable deals seen during the quarter, such as the Government Land Sale NKIL 6551 which was awarded to Sun Hung Kai Properties for $11.26b (US$1.44b) or $17,363.07 (US$2,213) psf on land value. Likewise, Mapletree sold their brand new office building in East Kowloon, Mapletree Bay Point, to private equity firm PAG for $9b (US$1.147b) or $11,910.14 (US1,518) psf. Government Land Sale TPTL 244 was also awarded to Sun Hung Kai Properties for $6.31b (US$804.13m) or $6,645.51 (US$847) psf on land value.

Colliers International said it expects to see increasing transaction volumes in the industrial sector as more options become available on the market, attracting private and institutional investors alike looking to capture potential. “Commercial assets such as retail and offices should witness continued interest from qualified buyers due to Hong Kong’s high market liquidity,” the firm noted.