According to the latest Hong Kong Monthly Property Market Report released by Knight Frank, the 2014–15 Budget announced on 26 February stressed again the government’s determination to increase residential and commercial property supply. However, Knight Frank expects this supply to remain tight in the short to medium term.
The traditional February holiday season saw relatively low activity in the Grade-A office leasing sector, while the retail market was also relatively quiet, with slower retail sales compared with the same period of last year. The residential market saw robust activity in the primary sector with developers continuing to offer benefits, while secondary sales saw some signs of revival as more landlords became more flexible on asking prices.
Residential
Developers’ sweeteners have successfully lured buyers, resulting in a market dominated by the primary sector, which has constituted around 40% of total transactions in the last two months. Secondary owners are facing difficulty in finding buyers, unless they are willing to consider price reductions of at least 10%. With more secondary owners realising the situation and willing to accept lower prices, the stagnant secondary market has finally shown signs of revival, especially for small to medium size units. On the leasing front, with housing allowances being reduced and fewer expatriate arrivals, dwindling rental demand for luxury homes has forced landlords to reduce rents.
Thomas Lam, Director and Head of Research & Consultancy, Greater China at Knight Frank, says government’s land-sale plans reflect its determination to increase housing supply. He expects the effect the increased supply has on stabilising property prices to become more obvious in the second half of the year.
Prime Office
The Grade-A office leasing market was relatively quiet during the holiday season in February, with Chinese firms remaining the main driver of demand. Grade-A office rents grew a slight 0.7% in February. Rents in Central, along with the absorption of vacant space, seemed to have bottomed out, with monthly rent growth rising from 1.2% in January to 1.5% in February. All districts continued to experience slight price drops, constituting a 0.5% drop in overall Grade-A office prices in February – the seventh straight month of declining prices.
Despite the 2014-15 Budget placing emphasis on increasing commercial land supply, Thomas does not expect Grade-A office supply to increase significantly in the short to medium term. Given limited supply and the expectation of sustained demand in Hong Kong, office rents are expected to remain stable.
Retail
The slowing retail sales growth rate continued to engender caution among international retailers, both in terms of expansion pace and location selection. However, international brands are still entering the Hong Kong market. Thomas believes that prime-street rents have peaked and will remain stable, while there will be more room for rent negotiation for shops in secondary locations.
“We expect retail sales growth to slow to a single digit in 2014. However, we remain optimistic about the medium to long-term outlook for the local retail sector, as tourist arrivals are forecast to increase to 70 million by 2017 and around 100 million by 2023. This will benefit the local retail property market in terms of take-up of retail space, rents and capital values,” Thomas concludes.