With the implementation of the Special Stamp Duty, Buyer’s Stamp Duty and Double Stamp Duty as well as the Residential Properties (First-hand Sales) Ordinance, residential property sales have been quiet in the first half of 2013. At a press conference held in Knight Frank Hong Kong office this afternoon, Mr Thomas Lam, Director and Head of Research & Consultancy, Greater China, together with Mr Nelson Lam, Director of Commercial Agency, Hong Kong at Knight Frank review property market performance over the last six months and forecast residential and office market trends in the second half of this year.

• With a bunch of tightening measures in place, it is expected that residential sales will fall about 10% this year to 70,000-75,000 units, with mass residential prices dropping around 10% and prices in the more resilient luxury sector falling 5%. Thomas expects that “Hong Kong Island mass residential prices will not drop more than 5% this year, while prices in less resilient areas like Tseung Kwan O and Yuen Long will drop around 10% due to sufficient future supply.”
• With the new Residential Properties (First-hand Sales) Ordinance having come into effect on 29 April, most developers suspended the launch of new units. Although around 5,000-7,000 units could be potentially launched this year, only around 900 units are available for sale at the moment in June 2013.
• The government predicts 67,000 units will come onto the market in the next three to four years; Thomas expects that “it is unlikely that the supply target could be achieved in the short term and residential demand is not likely to be satisfied considering the current planning and development progress.”
• Meanwhile, the Home Ownership Scheme (“HOS”) market showed signs of distortion lately. After the government has announced an interim scheme to allow eligible white-form applicants to buy second-hand HOS flats without paying premium, due to the expectation of strong new demand from “white-form” applicants and the shortage of supply, the prices of HOS flats have surged recently. Some HOS flats were sold at prices higher than private flats because of their convenient locations.
• Housing affordability ratio in Hong Kong hovers at an alarming 60% level. If property prices stay at current levels and mortgage rates go up by 200 bps, housing affordability in Hong Kong will rise to a dangerous level.
• Thomas concludes that “more tightening measures will come should property prices continue to increase.”

• Hong Kong’s Grade-A office sales market remained subdued in May, while the leasing sector remained stable, but transactions mainly involved relocation and renewal.
• Nelson says “Central’s Grade-A office rents are bottoming out this year with an around 5% vacancy rate. We are positive on the Kowloon East Grade-A office market and expect office rents to rise around 10-15% this year.”
• The imbalance of supply and demand in the Grade-A office market in Hong Kong would see little change during 2013 to 2016 until a wider range of office clusters emerge starting from 2017.
• Nelson adds that “to maintain the status of Hong Kong as an international financial centre and its competitiveness, Hong Kong should speed up the progress of office supply.”