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News from Knight Frank Hong Kong

Chinese Mainland and Hong Kong property 2018 market forecasts

30 November 2017

Hong Kong’s Chief Executive Carrie Lam tabled her housing strategies and a series of measures for Hong Kong, as well as offered her vision to rebuild the housing ladder in her Policy Address. With the local property market continued booming, developers are speeding up launching of new projects. Given the large home supply and the continued demand, we do not see any major factors resulting to home prices collapse. We expect that the local home price to increase 5% in 2018. On the Mainland, the 19th National Congress of the Communist Party has re-affirmed the administration’s principle that houses are for people to live, not for speculation. This has also underlined the Central Government’s determination to increase rental housing supply. 

 
At a press conference held in Knight Frank Hong Kong office this afternoon, Thomas Lam, Senior Director and Head of Valuation & Consultancy, Maggie Lee, Senior Director and Head of Residential Agency, David Ji, Director, Head of Research & Consultancy, Greater China at Knight Frank, together with 
Nancy Cheng, Marketing Director at Holdways, presented their forecasts for Hong Kong and Chinese Mainland’s property markets for 2018.
 
Chinese Mainland Residential Market: 
 
  • In order to alleviate the overheated property market while reducing the economy's financial risk from dependence on debt, the Central Government continues deleveraging and tightening credit. The growth of residential sales transaction and corporate investment will ease. However, the GDP growth in 2018 is expected to maintain at about 6.5%.
  • The 19th Party Congress re-affirmed the administration’s guiding principle that houses should be for living in, not for speculation. Currently, Home Purchase Restriction (HPR) has been enforced in more than 47 cities and we expect the measures to remain in place next year.
  • Since the introduction of localised housing policies in Q4 2016, 15 major cities out of 70 cities have recorded year-on-year and month-on-month home price decrease at the end of October 2017. Looking ahead, the Central government is expected to continue to adapt localised housing policies and introduce cooling measures to the overheated cities.  
  • This year, the Mainland’s residential market remained stable, the number of cities with price increases slightly dropped. As at the end of October 2017, 50 cities out of 70 recorded month-on-month home price increases. Nevertheless, the growth on home prices in first-tier and second-tier cities are polarised. Home prices in second-tier cities recorded a strong growth, with Beihai seeing the fastest year-on-year mass home price increase in October (14.5%), followed by Xi’an (13.7%) and Yangzhou (12.0%). On the other hand, with the implementation of cooling measures, first-tier cities like Shanghai and Beijing recorded 0.2% to 0.3% drop in home prices. Shenzhen, in particular, recorded the largest home price decline of 3.3%. Luxury home prices in first-tier cities grew further despite cooling measures, Guangzhou, particularly has seen a large increase in luxury home prices.
  • In March 2017, the Greater Bay Area initiative was announced. The plan is part of China’s urbanisation push. This will encourage Hong Kong and Mainland business activities, as well as accelerate economic growth and collaboration in the Pearl River Delta region. We also expect this initiative to narrow down the home price differences between Hong Kong and the Pearl River Delta region, in turn this will help absorb the housing and investment demands on both sides of the border. 
  • Hong Kong is the most popular cross-border destination in the Greater Bay Area. For cross-border investors, Hong Kong is more attractive than some mainland first-tier cities such as Shenzhen and Guangzhou. We foresee that with the economic development in Greater Bay Area, Hong Kong will continue to attract more cross-border investments.  
 
Hong Kong residential market performance: 
 
  • In Q3 2017, Monaco - for the 10th consecutive year – is confirmed as the most expensive city to buy luxury residential property, with US$1m buying just 180 sq ft of accommodation. Not far behind, are Hong Kong and New York occupying second and third. US$1m would buy 200 and 270 sq ft, respectively. 
  • In the financial year of 2016/2017, Hong Kong capital and mainland developers in Hong Kong accounted for 50% each of the overall land sales market in Hong Kong (including tenders by the government, MTRCL and URA). However, by the financial year of 2017/2018, Hong Kong capital accounted for more than 90%. After the aggressive acquisitions of residential sites by Mainland, Hong Kong developers have also began to actively allocate large capital on commercial land. As of the financial year 2017/2018, Hong Kong investors have acquired 7 non-residential and 3 residential sites while Mainland developers only bought 4 residential sites.
  • In the financial year of 2016/2017, Mainland and Hong Kong developers were very active in residential land site acquisition in Hong Kong, the total land premium paid reached HK$115.5 billion. As about 50% of residential land premium was paid by Mainland developers, we expect the trend to continue but with reduced transaction value. With the new restrictions on Chinese outbound investment, Mainland developers amounted to only HK$19 billion of Hong Kong residential land site acquisition leading to mid-November 2017. Going forward, we expect Mainland developers to be more selective and strategic on their investments. 
  • Mainland buyers have also been active in the local luxury residential market. Of the top 30 luxury house and apartment deals, 35% involved Mainland buyers during the first 10 months of 2017. Mainland buyers accounted for a slightly larger proportion in 2016.  
  • Total residential sales are expected to reach about 60,000 in 2017, we expect the residential sales volume to reach 60,000-63,000 in 2018. Hong Kong residential sale has been very active, the total primary and secondary sales value is expected to reach HK$550 billion by the end of this year, 29% increase year-on-year. Developers are expected to offer various beneficiary packages to lure buyers and the primary sector will remain dominating. It is expected that 30% or more transactions from primary market. 
  • As of today, 31% of residential stock in Hong Kong is sized below 400 sq ft (saleable area). Small units will remain as the market focus, with 36% of new flats to be provided in 2018-2012 being sized below 400 sq ft and 4% of sized below 200 sq ft. 
  • From 2018 to 2022, Hong Kong's new homes supply will be around 20,000 units per year on average. The supply will mainly be in the New Territories (60%), while Hong Kong Island (less than 10%) will see limited supply. In view of the current situation, we do not see any major factors to cause a drastic price drop this year. We also foresee that the mass residential home prices will increase by 5% next year. Mainland capital continues to pour into Hong Kong's luxury market. With limited supply and increasing demand, the luxury homes market is expected to perform well next year, with prices to increase by 8%. 
  • The impact of shrinking the Fed's balance sheet to the residential market is limited in the short run. Geopolitical and Mainland’s economic factors have the greatest impacts on Hong Kong’s property market, while interest rate’s impact is limited.