Hong Kong Home Sales Slows in Q3
Oct 14th, 2015
Hong Kong’s secondary home sales slowed in the third quarter while property investment market registered fewer transactions amid global stock markets turmoil, global property agencies' latest research found.
Volatility in the stock market, lack of incentives for the owner to cut price resulted the slower sales in the quarter, DTZ/Cushman & Wakefield’s latest research pointed, adding amid sluggish sales in the third quarter, home prices had a much smaller growth rate, or close to going flat in some cases. Luxury flats saw no better prospects.
Property sales, indicated by the number of Sales and Purchase Agreements (S&Ps), declined to 5,445 and 5,805 in August and September respectively, making the total property sales volume in the third quater to 18,887 S&Ps, which was down by 13 percent from the the second quarter. Collectively, the total property sales volume in the third quarter was down by 27 percent from a year ago.
Alva To, DTZ Cushman & Wakefield's head of consulting services, Greater China, said “Apart from some discounted sales possibly prompted by loss in the stock market, transactions had been few as owners, who generally have considerable holding power on the basis of low interest rates, have no great incentive to offload their properties.” adding recent figures showed that primary sales were robust, was encouraged by new supply and incentives offered by developers to lower the cost for buyers. On the basis of increasing land supply, and developers being flexible in their strategies including incentive offering and time of launch etc, sales of primary residential could reach higher levels. This could put pressure on the price trend of the secondary residential.
The property investment market also saw fewer transactions in the third quartere, which was about half the level of the second, but the combined consideration in the third quarter was 9.5 percent greater than in the last quarter. Offices, both en-bloc and strata-title types, and luxury residential remained a favorite of investors, as these types of property provided a long-term, stable yield that attracted investors, according to DTZ/Cushman & Wakefield’s research.
Savillis' lastest research also suggested the sluggish Hong Kong office leasing demand over the remainder of 2015 due to the reduced profitability of the securities industry and the poor performance of PRC-related asset management companies and funds.
As of August 2015, the Shanghai Composite Index and the Hang Seng Index fell by 29 percent and 17 percent from their peak in June. According to the Securities Association of China, total revenue and net profit of the securities firms in July fell by 41.2 percent and 49.07 percent month-on-month, respectively.
Savills' Hong Kong-based research team led by Simon Smith expects a slowdown in the take-up of office space by PRC firms as it sees less profit by financial firms. In April 2014, Hong Kong and China approved the development of the Shanghai-Hong Kong Stock Connect for the establishment of mutual stock market access between Shanghai and Hong Kong- investors are able to trade shares listed on the other’s market. According to Savills' research, since the start of the Shanghai-Hong Kong Stock Connect program- which allows stock investor in November 2014, the average daily northbound transaction value (Hong Kong investors buying Shanghai Stocks) increased by 92 percent to RMB 8.92 billion; average daily southbound trade meanwhile increased by 4.6 times to HKD 4.23 billion.
On Hong Kong's property investment market, there were 59 major transactions (each with a unit value of more than HKD100 million) in the third quarter, netting a total consideration of HKD27.591 billion. The transaction volume was about half the volume in the second, but the consideration was 9.5 percent bigger – a result of several en-bloc transactions and one mega deal that occurred in the quarter.
Kenneth Yip, DTZ Cushman & Wakefield’s Director of Investment & Advisory Services in Hong Kong, said, “Luxury residential and offices, including both en-bloc and strata-title sales, accounted for nearly 73 percent of total transactions in Q3" adding sizable deals including the InterContinental Hotel in Tsim Sha Tsui and some industrial sites are also highlights of the quarter.
The number of transactions of offices (5 en-bloc deals, 16 strata-title deals) this quarter was similar to the level in the second quarter, however the consideration in the third quarter was bigger. For en-bloc deals, the total consideration rose from HKD 1.424 billion to HKD 4.247 billion.
“Investors are interested in properties with a stable prospect and yield. En-bloc office buildings, especially those in core areas, are particularly popular in the market due to their tight supply." Yip told a conference yesterday, adding " On the other hand, the supply of strata-title offices is less tight, and the demand for this class of asset is steady and user-based. Given the positive prospect of rental growth in Hong Kong, en-bloc and strata-title office assets will continue to be on investors’ radar.”
Deals of industrial properties shrank to a much lower level in terms of both volume and consideration. This fit the trend that as the deadline for applying for the revitalization of industrial properties gets closer, buying interest dwindled, according to DTZ Cushman & Wakefield research, adding both the volume and consideration of retail property transactions in the third quarter went down from the previous quarter, and it is worth to note that among the five retail transactions in this quarter, three of them involved properties in non-core retail areas.
