Photo by Ruslan Bardash via Unsplash.

Surging costs dampen demand for new homes

Plans to relax loan-to-value ratio will have little effect on boosting transaction volumes.

The government’s plan to further relax loan-to-value ratio for first time homebuyers will have little effect on the residential market, as high costs continue to dampen buyers’ interest, according to CBRE Hong Kong.

Surging financing costs remain the main factor hindering property buyers from entering the market, said Eddie Kwok, senior director, valuation & advisory services, CBRE Hong Kong.

After a strong rebound in Q1, transaction volume dropped by 12.7% mont-on-month in May 2023 to just 4,003 units, according to data from the Land Registry. This extended the steep 31.5% decline in volumes from April. by 31.5% m-o-m in previous month. 

“Higher financing cost and global banking turmoil previously drove property buyers to be more cautious on their investment decisions,” Kwok noted.

ALSO READ: Industrial production up nearly 4% YoY in Q1

Kwok and CBRE expect transaction volumes to remain largely the same, fluctuating around 4,000 units per month in the near term, with roughly one-fourth coming from primary sales. 

However, there may be buyers who may choose to purchase property from developers at this moment as developers have more incentives to offer.

Whilst the number of primary sales transactions dropped 35.5% in May compare dto the previous month, primary sales transactions still hit at least 1,000 units per month in March to May. High inventories and looming ongoing supply put pressure on developers to push more units for sale at attractive offers, Kwok said. 

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