June 15, 2017

Hong Kong’s current residential property market is “abnormal and a result of the Government’s cooling measures,” according to JLL Managing Director for Hong Kong, Joseph Tsang.

“It’s possible to sell a mid-range unit of just a few square hundred feet for HKD6 million,” comments Tsang on the dramatic uptick seen between the fourth quarter of 2016 and Q1 2017 when land sales in the city’s Kai Tak and Ap Lei Chau areas fetched record prices amid aggressive bidding from mainland Chinese developers.

He expressed his opinions in response to questions raised by local media at the launch of boutique development, 28 Aberdeen Street in Hong Kong’s Central district.

“I wouldn’t describe the phenomenon as a ‘bubble,’ but it is wearing down the meagre purchasing power of Hong Kong residents, especially first-time home buyers,” observes Tsang. “This group of people often finds property so unaffordable that a couple may need financial support from both parents, as well as 80 percent to 90 percent mortgages.”

In the present market climate, Tsang emphasises that “regardless of the record land sale prices, the market still hinges on the affordability of homes for Hong Kong buyers.”

“With such high residential unit prices across the market, the trend to build smaller, and therefore less expensive, units will continue for at least two more years,” he says.

The growing number of smaller flats entering the market may well be influenced by the influx of Chinese developers into Hong Kong—and their spending power.

“When you consider that there are 60,000 mainland developers, if just 10 percent of them bid in our government’s land sale tenders over the next five years, the local property market would be profoundly influenced. Chinese developers’ market share may soon exceed 50 percent,” notes Tsang.

“Mainland Chinese developers may continue to bid aggressively, as they did for the plot in Ap Lei Chau,” he predicts. “The 15 percent to -20 percent price increase caused by that bidding was too fast.”

JLL has already factored in the participation of Chinese developers in its forecasts with Tsang predicting “a price increase of up to 10 pecent this year for small units such as 28 Aberdeen Street.” That surge may put all but the smallest flats out of reach of first-time buyers.

“I expect the market will calm down later on this year,” he adds.

A string of interest rate increases led by the U.S. Federal Reserve would translate into rate rises in the range of 25 to 50 basis points in Hong Kong, according to Tsang. If the rate hikes are rapid, the local residential property market would be forced to adjust further.

“Such heated and detrimental market conditions would add momentum to the trend to build small units in the near- to mid-term,” foresees Tsang. “I worry that if residential property prices increase further, the government may implement additional cooling measures, and that may not solve our problems.”


Joseph Tsang

Chairman and Head of Capital Markets, JLL Hong Kong

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