The posh homes segment continues to dominate the overall property scene.
Property transaction volume, in terms of sale and purchase agreements (S&Ps), continued to rebound from Q1 levels as it surged 41% MoM to 7,071 units in May from 5,015 in April, according to Cushman & Wakefield. This marks the highest figure in 2020.
As the local coronavirus outbreak gradually eased in Q2, buying sentiment was boosted by the launch of a round of primary residential projects. Both home transaction volumes and prices trended upward, which countered the falling property investment market as major deals crashed to the second lowest quarterly level since the Global Financial Crisis (GFC). This was attributed to a backdrop of low incentives for both owners and investors to forge transactions, and a general wait-and-see attitude.
“Transactions were constrained by the coronavirus outbreak during the first quarter, and when the local outbreak began to ease in Q2, pent-up demand, mainly focused on primary projects, pushed up the transaction volume to its highest level in the past 12 months. However, the increase may be temporary, as the unemployment rate continues to rise. The full impact of that on the residential market will be clearer in the second half of 2020, and that will affect the market trend,” said Alva To, Cushman & Wakefield's VP for Greater China and the head of consulting for Greater China.
Home prices inched up slightly in March and April. Cushman & Wakefield cited the government's price index, where for individual estates, mass residential prices in City One Shatin posted an increase of 4% QoQ in Q1, whilst those in Taikoo Shing fell slightly by 0.5% over the same period. Luxury residential price trends varied as Residence Bel-Air saw a 1.8% QoQ dip, whilst The Harbourside was down by 6.7% QoQ.
"Strong liquidity in the market recently has also boosted asset values and given support to home prices, leading to a smaller drop in H1 than previously expected. As a result, home prices, as represented by some popular estates, are in general down by 0.5 to 10.8% year-to-date," To added.
On the investment front, the cautious sentiment spilled over to Q2. The report stated that to date, there are only 19 major deals recorded, whose value hit over $100m. This shows a 32% QoQ and a 71% YoY plunge, making Q2 the second lowest in quarterly volume since the GFC.
More than half of these major deals were in the luxury residential segment. Four major retail deals were recorded in Q2, whilst the number of strata-title office and hotel deals was around the same level as in Q1. Industrial deals were absent this quarter, no thanks to an absence of new incentives on revitalisation projects.
In terms of consideration, retail deals accounted for 7% of the total figure, mostly due to the sale of the retail shops at Cosco Centre in Sheung Wan by New World Development.
"The impact of the coronavirus outbreak aside, a poor rental outlook for CRE, as well as a lack of incentives for landlords holding properties with low LTV ratios to sell amid the low interest rate environment also explained the lack of commercial real estate transactions. A gap in price expectation between vendors and buyers thus ensues," To stated.
Looking ahead, Cushman & Wakefield expects to see 5,500 residential S&Ps in June, bringing the total residential volume in H1 to 25,790. This would be the lowest seen in a first half since 2009.
"As these factors will continue to cloud the market outlook in the near-term, we expect both buyers and vendors to remain on the sidelines. Upon clearer developments in the coming quarters, investors will be able to better reassess the need for diversification which will help spur more activity in the market," To commented.
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