Developers, hit by a supply decline of 6% in the next three years, look for alternatives to make profits.
Developers are expected to spread their financing incentives to upgraders in order to boost the sales of bigger units, according to JLL’s latest Residential Sales report.
They are also expected to build fewer medium-sized flats due to the weaker sell-through rates. The supply of medium-sized flats, ranging from 753-1,075 sqft, is expected to drop to just 6% of total supply over the next three years, compared with 9% in 2018.
According to data from the Census and Statistics Department, the pool of higher income households earning $60,000 per month has increased from around 13% to 19% over the past five years.
“The income level of this cohort can ordinarily afford to purchase medium-sized flats, even in the current high price environment. However, the transaction volumes in this segment of the market remains limited, suggesting a high degree of pent-up demand,” Henry Mok, senior director for Hong Kong Capital Markets at JLL, and analyst Cherie Tang noted.
The lack of transactions can be partly attributed to the government’s implementation of various demand-suppression measures since 2010, they added. Upgraders for example, are liable to an upfront Double Stamp Duty of 15% of the property price, despite those that sell their original flat within a 12-month period can get a stamp duty refund.
“It is a major barrier to buy property for upgraders,” Mok and Tang said.
The affordability issue stops many buyers from acquiring bigger units, resulting in weaker sell-through rates of medium-sized units. With the implementation of the vacancy tax getting closer, developers are more likely to offload unsold stock at a faster pace.
“To tackle the affordability issue, we expect developers, especially heavyweights with strong financial standing, to offer more financing incentives to boost the sales of bigger units by providing loans up to 90% of the property’s value. Borrower’s profiles of those plans will also spread from first-time home buyers to upgraders,” Mok noted in a statement.
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