Tony Tsang (Research Analyst)  Jason Ching, CFA (Research Analyst)

Pricing expectation has yet to change

Based on a survey compiled by the Chinese University of Hong Kong in August (738 residents over the age of 18 were surveyed), 37.2% of the respondents believed that residential prices in Hong Kong were likely to rise in the next 12 months, 42.5% of the respondents believed that prices would stay flat, while only 11% of the respondents believed prices would fall. Moreover, more than 50% of the respondents expected price appreciation to be 5-10% while 20.4% believed there would be a price appreciation of 10-20% in the next 12 months. The results of the survey suggested that pricing expectations had yet to change, despite the various government measures.

Potential negative triggers in the next 12 months

While the pillars used to support the strong residential market, including tight supply and low interest rates, have faded out, as a trigger for the turning point of the cycle is yet to emerge, prices have been holding up well. However, Mr Wong sees the following as potential negative triggers in the next 12 months:

1) US interest rate hike – following the completion of the US tapering by end-October, an interest rate hike is next on the agenda (expected to start as early as Apr-15);

2) New supply on the rise ahead – according to the Transport and Housing Bureau, there are up to 74,000 units (including completed but unsold units, projects that have already obtained pre-sale permits, and projects that can commerce construction immediately) in the next three to four years, implying an annual supply of 18,500 units, a multi-year high. This reflects that the proactive stance of increasing land supply as a means to increase new supply of residential units is materialising.

At present, only 33.3% of all development land in Hong Kong has been utilised, of which land designated for residential use only accounted for 6.9%. Of the 66.7% development land still being undeveloped (of which 39.6% being country parks), there is good scope to increase land supply ahead. According to the Chief Executive, CY Leung, utilising an extra 1% of the development land is able to accommodate up to 1m residents.

3) Mainland buyers have mostly disappeared from the market – following the implementation of the BSD and the DSD and tightened mortgage requirements, in addition to the economic slowdown in China and theanti-corruption campaign, mainland buyers have not been active in the past year and have virtually disappeared recently.

4) Price cuts in the primary market to dominate – as pricing in the primary market is now at a discount to that in the secondary market, implying that buying demand is flowing to primary from secondary. Secondary owners have little option but to cut prices markedly in order to compete with the rebates and incentives.

5) Land prices are seeing a marked decline – successful bids in the latest land tender in Tuen Mun are at a 12-year low, suggesting that developers are seeing a substantial risk of residential prices declining ahead.

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