Chinese Mainland residential market 2020 forecast:

Hong Kong property market 2020 forecast:

Chinese Mainland Residential Market:

David Ji, Director, Head of Research & Consultancy, Greater China says, home price rises are slowing in Chinese Mainland’s major cities. Number of cities which recorded a drop in price were on the rise in the past four months. The local government has recently revealed a series of measures that ease restrictions on Hong Kong residents buying properties in the Greater Bay Area (GBA), which may boost investment opportunities and the property market in the area. Among all key cities in the GBA, we envisage Zhongshan, Jiangmen, Zhuhai, Dongguan to have the highest growth potential, attributable to the infrastructure development coupled with currently lower housing prices. Meanwhile, prices in the GBA cities are expected to increase a little faster at 3-5% with the improvement in connectivity.

Hong Kong Residential Market:

Thomas Lam, Executive Director, Head of Valuation & Advisory says, social unrest and economic slowdown have had a negative impact on the property market in Hong Kong in recent months. The average residential home price is expected to drop by 8% from its peak in May this year. Despite the weakening market sentiment, which has dampened sales volume in the past few months, the relaxation of mortgage cap for first time buyers helped restore some purchasing power, especially in the secondary market within the HK$6-8 million segment. Under a 90% mortgage cap, a quarter of the 1.9 million taxpayers in Hong Kong would meet the minimum household income requirements in order to purchase properties worth HK$6 million. For properties worth between HK$6 to 8 million, buyers only need a down payment of 10%. These properties will become the main demand drivers in the market, and will drive up transaction volume by as much as 20-30% in the next three to four months until the purchasing power has been exhausted. With a HK$8 million budget, homebuyers can now afford a flat that is slightly larger than 500 sq ft in the New Territories districts such as Tseung Kwan O, Tung Chung and Tuen Mun. Consequently, sales activities will be concentrated in these areas.

Since the initial down payment could decrease by 20% for homes between HK$8 to 10 million, we believe developers will focus on marketing small to medium sized homes priced below HK$10 million. Meanwhile, some developers might launch luxury homes to test market reaction.   

Overall, the transaction volume of first-hand and second-hand homes will be on a par with last year, we expect the total residential sales volume to reach 60,000 in 2019. We foresee the mass residential home prices will drop slightly by 5% in the coming year, but the reoccurrence of the 1997 property market crash is very unlikely.

Regarding land sales, Thomas estimates that even though the government will continue to sell land at a slow pace, home supply will still be able to meet the supply target. However, there will be insufficient land and home supply after 2022 and 2023, so next year will be a crucial year to provide additional land. In addition, we estimate that the government's land sales revenue for the 2020/2021 fiscal year will be about HKD 100 to 120 billion.

Maggie Lee, Senior Director, Head of Residential Agency, expects the luxury prices will be a lot less sensitive to the negative economic conditions than mass market prices. Some buyers may take a wait-and-see attitude, but we saw that in the past couple of months, the investment appetite of the high net-worth individuals (HNWIs) remained. We expect the luxury and super luxury segment to be resilient to the faltering economy through the current downturn, and prices to remain stable in 2020.

Hong Kong Office Market:

Wendy Lau, Senior Director, Hong Kong Office Services says, due to the impacts of the Sino-U.S. trade war and social unrest, many tenants are cautious about the market prospects and most of them place great emphasis on cost saving options. Many tenants have moved to office buildings with lower rents in the same district, while some have relocated to non-core areas or even within the existing office buildings. In the last two or three months, we have seen many tenants reducing their leases area by approximately 20-30%. Leasing activities of Chinese-funded companies have dwindled. A small number of premium Grade-A office buildings reported lease surrenders, leading to some supply re-entering the market. All in all, as the vacancy rate of Grade-A office buildings in Hong Kong Island remained relatively low, we do not expect the rent to decrease significantly next year, but a slight decline by about 6-8%.

Kowloon Office Market:

Patrick Mak, Executive Director & General Manager, Head of Kowloon Office Services says, leasing sentiment in Kowloon is weakening due to the uncertain outlook for both local and global economy. More lease disposition cases were seen in Kowloon, indicating early signs of weakening demand. As the office supply has not yet been fully absorbed, with the additional supply from lease disposition cases and co-working spaces, even if the office new supply is limited in Kowloon in 2020, we maintain our conservative forecast that office rents will continue to drop in the first half of next year. Overall, we expect the office rents in Kowloon to drop by 2-4% next year and an even bigger decline in Grade-A office rents.

Hong Kong Retail Market:

Helen Mak, Senior Director, Head of Retail Services says, although we foresee Hong Kong’s retail spending to remain under pressure in 2020, the retail industry is expected to gradually enter a “new normal”. Consumers spending power and sentiments are negatively impacted by the ongoing social unrest, retailers and shopping malls in key shopping districts, such as Central, Causeway Bay, Tsim Sha Tsui and Mongkok, have been badly impacted by the protests in these districts. Conversely, people have chosen to stay in their local communities and avoided going to key shopping districts because of the unstable traffic and unforeseeable conditions. Sales in community malls, neighbourhood malls and suburban malls, which offer daily necessities to locals residing in close proximity saw solid sales. In addition, even though people have become more cautious about their spending, they tended to support mom-and-pop shops. As a result, stores in non-core retail areas have been buttressed by more local consumption in the past few months. If this new market trend continues, retailers who used to have stores concentrated in major shopping areas may consider dispersing their outlets to non-core retail areas. We believe under the current circumstances, the role of neighbourhood malls would be strengthened, resulting in the development of ‘local community hubs’.