Hong Kong Market Overview 2010

The Hong Kong Government released their latest property report on 13 August. Please see below their findings.

Residential Market

Supported by improved economic outlook and low interest rates, the residential property market regained momentum in the first four months of 2010. During May, the market slowed slightly following the announcement of further Government regulations. These regulations, contained in the 2010-11 budget, are intended to support the healthy and stable development of the property market. The regulations are focused primarily on increasing flat supply, discouraging property speculation, improving transparency of property transactions and prices, and preventing excessive expansion in mortgage lending.

The market regained momentum in June, with both transactions and prices rebounding with improved market sentiment after the favorable land auction result. (see below under Land for further details) Taking the first half of 2010 as a whole, the number of sale and purchase agreements for residential property received by the Land registry reached 65,629, representing a sharp 26% increase over the low base a year earlier. Furthermore, total consideration for the agreements jumped by 45% over a year earlier or 2% over the preceding half-year period to $254.4 billion.

Apartment prices rose further in the first half of 2010 with most of the gains occurring in the first four months of this year. Overall apartment prices rose by 8% between December 2009 and June 2010, and were 15% higher than the peak in 2008.

Analyzed by size of properties, prices of large apartments and small/medium-sized apartments rose by 7% and 8% respectively between December 2009 and June 2010. Compared with the highs in 1997, prices of large apartments in June were already 2% higher while prices of small/medium-sized flats were still 16% lower.

Notwithstanding the active transactions, the residential property market remained largely led by end-users. In the first half of 2010, almost 90% of the secondary market transactions involved apartments in the mass market (i.e. smaller than 70 square metres). Speculative activities, as indicated by the number of confirmor cases and their share in total transactions, were generally not rampant. Thanks to the exceptionally low mortgage interest rates, the home purchase affordability (i.e. the ratio of mortgage payment for a 45-square metre apartment to median income of households, excluding those living in public housing) was 41.5% in the second quarter, compared with the long-term average of 52.6% over 1989 to 2008.

Nonetheless, the risk of a property market bubble remains with the surge in apartment prices. The repayment burden to homebuyers would increase should the interest rates eventually return to a more normal level. The Government announced a series of measures in February and subsequently in April and will continue to monitor the situation closely and introduce further measures when necessary.

Completions of private residential properties surged by 124% over a year earlier to 7,030 units in the first half of 2010. The medium-term supply has also picked up, as a result of the developers' keener interest in land acquisitions and the Government's various land-related measures. In the first half of 2010, 26 sites that together could produce some 13,900 residential units were disposed, lifting the total supply from 53,000 units, as estimated at end-2009, to 61,000 units, as estimated at end-June 2010.

The rental market picked up in the first half of 2010. Rentals in June 2010 rose by 7% over December 2009 and were only 3% below the recent peak in 2008. Analysed by apartment size, the increase in rentals for large apartments, at 11%, outpaced that for small/medium-sized, at 7%. The average rental yield for residential apartments stayed at 3.6% in June 2010, virtually unchanged from December 2009.

Commercial and Industrial

In tandem with the economic recovery, the commercial and industrial property markets firmed up further in the first half of 2010. Prices of office space rose by 8% in June 2010 from December 2009, and have surpassed the recent high in 2008 by 6%. Prices of Grade A, B and C office space all registered gains, of 9%, 11% and 7% respectively. On the leasing front, office rentals in June 2010 increased by 6% from December 2009, but were still 9% below the 2008 peak. Rentals of Grade A, B and C office space all registered gains of 6%. The average rental yields for Grade A, B and C office space were 3.3%, 3.8% and 4.2% respectively in June 2010, compared with 3.3%, 4.0% and 4.2% in December 2009.

On retail shop space, prices in June 2010 surged by 9% over December 2009, and have surpassed the high in 2008 by a sharp 20%. Shop rentals in June 2010 rose by a relatively modest 5% over December 2009, and were 5% above the high in 2008. The average rental yield for retail space edged down from 3.7% in December 2009 to 3.5% in June 2010.

Land

In July the Government sold a residential site in the city's luxurious Peak district for HK$10.4 billion ($1.3 billion). It will auction off other sites in Hong Kong's Kowloon and Kowloon Tong neighborhoods in the second half of August. After these scheduled sales, the Hong Kong government will have sold land that could accommodate 11,200 apartments (most of Hong Kong's housing stock consists of flats). In both 2008 and 2009, sales were just 7,500 units for the whole year. Since almost all homes are in high-rises that usually take at least four years to complete which means greater supply won't translate into more apartments until 2014 at the earliest.

Click here to find out about the effect of the recently introduced government regulations.

Source: http://www.hkeconomy.gov.hk/en/reports/index.htm