Underlying Risks Seen Amidst Hong Kong Housing Boom

May 28, 2011 - PRLog -- This is proven in cases where vendors were seen raising their asking prices by 3% - 5% and in some cases, withdrawing their units from sale after the latest government land auction of the three sites in Mid-Levels, Kowloon Tong and Yuen Long.  

With strong market sentiment, increases in asking prices and rentals were seen across the board. As of end April 2011, the average luxury residential prices have risen 5.4% year-to-date (YTD) following a year-on-year increase of 16.3% in 2010, while the average luxury residential rentals have risen 5.2% YTD after increasing 15.4% in 2010.  

According to Ricky Poon, Executive Director of Residential Sales at Colliers International Hong Kong, the average luxury residential prices have already exceeded the peak in 1997 by 41%.

Whilst these all sound positive, the slowdown in residential sales activity over the past quarter revealed a growing uncertainty in the market. Since 4Q 2010, measures have been in place to simmer down the housing boom, such as several bank tightening measures including lowering of loan-to-value ratio and raise in HIBOR rates and the government’s announcement of a special stamp duty on residential sales transactions. Initiatives to increase land supply were also mentioned in the Budget 2011/12.  During the period between November 2010 and April 2011, the number of overall residential transactions dropped significantly by 42%.  

In the luxury residential market, the sales activity of property valued at different price segment varied.  In the “super-luxury” residential sector (referring to the luxury property transacted at over HK$100 million), the number of sales transactions continued to increase 27.3% quarter-on-quarter (QoQ) in 1Q 2011.  In contrast, the sales activity of luxury property sold for over HK$10 million registered a drop of 11.5% QoQ over the same period.  The different trend explained that the super-luxury residential sales activity was not influenced much by the banks’ and government’s measures over the past few months while that of the overall luxury residential property was relatively more sensitive.

“One of the driving forces for the robust luxury residential price growth can be attributed to the strong demand from wealthy Mainland Chinese buyers, who represent about 40% of total buyers in the “super-luxury” sector. Hence, besides bank tightening and the government’s cooling measures, a reverse or slow down in the ‘hot money’ from the Mainland to Hong Kong may also affect the residential price growth. The question now is when this will happen if it does happen. And when it does, there is a high possibility that the market will feel some down effects,” injects Poon.

In addition, recent trends in residential mortgage rate change and the banks’ perception to market risk are also two areas that should be addressed in the market.  

Comments Simon Lo, Director of Research & Advisory at Colliers International Hong Kong, “The margins of HIBOR-based mortgage have seen an increase of about 50 to 100 basis points.  Some banks are also anticipating higher price volatility in 2011 and have started adopting more stringent ‘stress test’ methods and more conservative valuations resulting in some cases which saw valuations at 10% to 15% below asking prices. This in turn, may potentially affect the residential sales activity growth especially that by the end-user demand.”

“Having said that, with the continuous low interest rate environment over the near term and limited new supply in the market, the price of luxury residential market is expected to continue its upward climb to 6% in the next 12 months.” Lo said.


For more information please contact

Colliers International Hong Kong
Mr. Simon Lo
Director, Research & Advisory
Tel   (852) 2822 0511
Email   Simon.Lo@colliers.com

Mr. Ricky Poon
Executive Director, Residential Sales
Tel   (852) 2822 0782
Email   Ricky.Poon@colliers.com

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