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News from Knight Frank Hong Kong

Mainland and Hong Kong property markets 2018 review and outlook

07 June 2018

In Hong Kong, housing prices continued to reach new heights, with the latest official data in April up 22.8% from the previous peak. With no signs of the residential market cooling down in the short term, both mass and luxury home prices are forecast to increase by 8-12% this year. Meanwhile, with limited supply, super luxury home price is forecast to rise by 10%-15%. On the Mainland, despite various property market cooling measures, residential prices continued to rise. Going forward, mild home price increases are expected in both first-tier and second-tier cities, while a faster growth is expected in the third-tier cities. Cities in the Greater Bay Area will also see strong growth over 2018. 

 
At a press conference held in Knight Frank’s Hong Kong office this afternoon, Thomas Lam, Senior Director and Head of Valuation & Advisory, together with David Ji, Director and Head of Research & Consultancy, Greater China, reviewed the Hong Kong and Mainland property markets in the first half of 2018 and presented their outlook for the second half. Helen Mak, Senior Director and Head of Retail Services presented the latest retail market updates.  
 
Chinese Mainland residential market
 
  • Despite various property market cooling measures, including home purchase restrictions (HPR), Mainland’s residential prices continued to rise. According to the National Bureau of Statistics (NBS) data, 58 out of the 70 cities surveyed reported price increases in April.
  • Home prices in lower-tier cities, in particular, recorded strong growth, with Harbin (12.0%) seeing the fastest year-on-year increase in April 2018, followed by Xi’an (11.2%) and Beihai (11.1%). Of the 10 Mainland cities with the fastest price growth, none of them is in the first-tier. In contrast, all first-tier cities saw negative price growth due to having more stringent cooling measures than lower-tier cities.   
  • Currently, Home Purchase Restriction (HPR) continued across the country and there is no sign of it being relaxed in the short term. Given that the prices are still growing albeit slowly we expect the cooling measures to remain in place in the next 18 months.
  • The launch of the Greater Bay Area concept in March 2017, as part of China’s push for regional economic integration, will stimulate business activities in both Hong Kong and on the Mainland, as well as accelerate growth and drive closer partnerships in the Pearl River Delta region. 
  • With infrastructure projects designed to enhance intra-regional connection and investment, there is a high potential for smaller cities in the Greater Bay Area to catch up on hub cities’ property prices, despite property cooling measures. 
 
Hong Kong residential market 
 
  • Despite a string of cooling measures, Hong Kong’s housing prices continued to reach new heights, with the latest official price index up 22.8% in April from the previous peak.
  • Affordability remains a major concern for potential homebuyers. According to Knight Frank Research’s analysis into Inland Revenue figures, among Hong Kong’s 1.85 million tax payers, only about 20% or 380,000 people can afford to buy a medium-priced flat costing HK$8 million.  
  • However, demand from both investors and end-users remains strong despite the cooling measures. Secondary residential transactions continued to increase, resulting in a 2:8 ratio between primary and secondary sales in the first four months of 2018, compared with 3:7 in previous years. Total residential sales are expected to reach about 60,000-63,000 units in 2018, about the same as 2017. 
  • Looking ahead, there will be around 100,000 units of new supply from 2018 to 2022, or about 20,000 units per year on average. The future supply is concentrated in the New Territories (57%), led by Tseung Kwan O (12%) and Yuen Long (11%).  In Kowloon, supply will concentrate in Kai Tak (11%). In terms of the size of future residential supply between 2018 and 2022, 37% of units are below 400 sq ft and 5% below 200 sq ft, due to the surge in home prices and lower affordability of purchasers. 
Hong Kong retail property market
  • The retail market continues its strong bounce back. In fact, the latest official sales figure not only point to an over 12% year-on-year (Y-o-Y) growth in overall retail sales for April, but also to the fact that every sub-category is now seeing growth, such as the 24.6% Y-o-Y increase in luxury goods sales. We view this as a sign that the retail growth is now on a much stronger footing.
  • With improved retail prospects, shopping malls will be directly benefitted with rents forecast for prime shopping malls to growth 3-6% this year. Meanwhile the positive prospect has also caused street shop rents starting to pick up, with vacant shops in prime streets expected to be taken up gradually in the second half of 2018. The Y-o-Y drop in prime street shop rents is expected to narrow further to as low as 5-10% this year compared to the over-ten-percent drop last year.
  • The improved transport connection within the Greater Bay Area will significantly help to capture the spending power of its 66-million inhabitants and inbound visitors, benefitting Hong Kong retailers as well as indirectly providing support to the retail property industry.