Property price growth in Hong Kong slowing

Price growth in the residential property market in Hong Kong has slowed as measures designed to cool the market take hold. Data from the Land Registry shows that residential transaction volume slumped 28.1% month on month, with only 4,534 sales recorded in March. Price growth in the luxury and mass residential sectors was a mere 0.6% and 1.2%, respectively, in the past month.

The measures imposed by the Hong Kong government to cool down investment activity are resulting in more people renting, according to analysts from international property firm Knight Frank. But it does not expect prices, especially at the higher end of the market, to fall too much.

‘Although the sentiment in Hong Kong’s residential market remained gloomy in March, with transaction volumes slumping sharply, we believe that if Hong Kong’s current inflationary environment with low interest rates is sustained, luxury residential prices will remain stable and fall no more than 5% in 2013, while mass residential prices will drop no more than 10%,’ the firm’s latest monthly report says. ‘Investors and non local buyers, mostly from mainland China, have been virtually screened out from the residential market, given the heavier taxation and higher investment costs. The market is now dominated by end users,’ it explains.

The report also says that amid uncertainty in the property market, some home owners, especially those in the mass market, started to soften and became more flexible during price negotiations. Following the Hong Kong Monetary Authority’s tightening of the risk weighted assets requirement of newly offered mortgages, several leading banks raised home loan rates and lowered the valuation of residential units, on the back of gloomy market sentiment.

‘Potential buyers, facing more difficulty in financing and waiting for the release of new residential projects in the coming few years, shifted their focus towards the rental market. Meanwhile, some landlords also shifted their units to the leasing market and the increased supply dragged down luxury residential rents by 0.4% in March,’ the report continues.

Quote from PropertyCommunity.com : “Residential property prices in Hong Kong have risen to their highest since December 1997, defying government efforts to rein in real estate speculation and prevent an asset bubble.”

In the primary market, developers continued to launch new projects during the Easter holidays. Some adopted a price cutting strategy, offering various benefit packages to boost sales. ‘We believe that if Hong Kong’s current inflationary environment with low interest rates is sustained, luxury residential prices will remain stable and fall no more than 5% in 2013, while mass residential prices will drop no more than 10%. Domestic transaction volume, meanwhile, could drop 10% in 2013,’ the report says.

‘On the leasing front, potential buyers may shift to renting, while landlords may also shift their units onto the leasing market. We therefore expect luxury residential rents to remain firm in 2013, while mass residential rents could rise by up to 10%,’ it adds.