With continued cooling measures in Hong Kong, both residential transaction volume and prices are expected to drop in 2014. In Mainland China, since no further property market cooling measures were announced in the Third Plenary Session of the Central Committee, it is expected that the Central Government will enforce long-term radical cure to tackle the bubble problem. At a press conference held in Knight Frank’s Hong Kong office this afternoon, Thomas Lam, Director and Head of Research & Consultancy of Greater China at Knight Frank, together with Helen Liu, General Manager at Beijing Holdways Information and Technology, present their forecasts for Hong Kong and Mainland China’s property markets in 2014.
Hong Kong property market 2014 forecasts
Residential market:
• Compared with 81,333 last year, residential transaction volume is expected to drop to 52,000-55,000 this year, a level even lower than the SARS-affected 2003, and to drop further to 45,000-50,000 next year with continued cooling measures.
• The 2014 sales market will continue to be dominated by primary sales, with beneficiary packages offered offsetting some impact of the cooling measures, while secondary sales will be further suppressed with primary prices being close to or even lower then secondary prices in the locality and lowering valuation of second-hand units.
• The 2014 home sales market will continue to be dominated by end-users, but investors will start to return to the market. The proportion of Chinese buyers in primary projects is expected to grow from the current around 5% to around 10% (compared with the peak level of around 35% last year), while the proportion of corporate buyers is set to grow from the current around 10% to around 15% (compared with the peak level of 20-30% last year).
• The market has turned and entered a downtrend. Residential prices will be heading south in the coming few years, but significant corrections are not expected amid a low mortgage rate environment. The only uncertainty will be from the US—the possible tapering of QE3 and interest-rate rise—but this is not expected until 2015 or 2016.
• Mass home prices will drop 10-15% in 2014, due to cooling measures and increased supply. Luxury residential prices will be more resilient, dropping 5-10% in 2014. The second half of the year will see more notable drop, as the market is expected to be supported by the release of previously accumulated purchasing power during the first half of the year.
• Supply in 2014 will focus on the New Territories, in particularly Tai Po, Tseung Kwan O and Yuen Long. In the coming year, around 18,000 new homes could become available for sale.
• In the leasing market, luxury residential rents could drop 5-10%, while the mass sector will be more resilient, with rents dropping 0-5%, amid strong demand for small to medium sized units.
Grade-A office and prime retail markets:
• Leasing Grade-A offices and prime street shops in Hong Kong are the most expensive in the world, while luxury residential prices in Hong Kong are the second highest globally. Thomas Lam, Director and Head of Research & Consultancy of Greater China at Knight Frank, expects the office investment market to start to defrost in 2014 with accumulated capital and investors’ digestion of the impact of the cooling measures.
• In the long run, Thomas suggests the government to increase land supply and relax the cooling measures.
Mainland China property market 2014 forecasts
Residential market:
• With no further property market cooling measures announced in the Third Plenary Session of the Central Committee held in November 2013 and the current policies only temporarily suppressing demand by restricting home prices and purchase, Ms Helen Liu, General Manager at Beijing Holdways Information and Technology, expects the Central Government to tackle the bubble problem by long-term radical cure, such as implementing a property tax, increasing land supply to prevent developers from competing for land with sky-high prices and regulating bank loan policies to strengthen market mechanism.
• Helen does not expect further cooling policies in the short term. In 2014, land in the core areas of first and second-tier cities will continue to be seized by cash-rich developers who have earned a lot in 2013 through issuing bonds and selling homes.
• Residential prices in first-tier cities will continue going up. Super luxury home prices will be suppressed with decreased sales volumes. Primary sales will be more robust than secondary with cooling measures continued.
• Residential prices in second-tier cities will increase, at a slower pace compared with first-tier cities. But some second-tier cities may see price corrections, such as Wenzhou and Dongguan with bubbles, while some other cities may see price surges, such as Haikou with robust speculation activity.
