The continuous supply of new homes and the potential US interest-rate hike are expected to slow down residential price growth in Hong Kong. Meanwhile, Mainland China’s housing market is expected to improve further under favourable government policies.
At a press conference held in Knight Frank’s Hong Kong office this afternoon, Thomas Lam, Senior Director, Head of Valuation & Consultancy, Knight Frank, David Ji, Director, Head of Research & Consultancy, Greater China, Knight Frank, together with Nancy Cheng, Marketing Director, Beijing Holdways, presented their forecasts for Hong Kong and Mainland China’s property markets for 2016.
Mainland China:
Residential market
- To stimulate the slowing Chinese economy and support the sluggish mainland property market, the Chinese government has introduced a series of policy easing since last year, including interest-rate cuts, lowering of required reserved ratio for banks and reduction of mortgage requirements for second-home buyers.
- As a result, the mainland’s residential market started to improve from the first quarter of 2015. In October 2015, 27 cities recorded month-on-month home price increases compared with zero a year ago. Home prices in first-tier cities in particular recorded a strong growth, with Shenzhen seeing the fastest year-on-year home price increase in October, followed by Shanghai, Beijing and Guangzhou.
- On 27 August, China relaxed rules on property investment by foreigners in most mainland cities, allowing foreign companies and individuals to buy more than one property for self-use. Although foreign capital only accounts for a fraction of the domestic property market, the policy relaxation is a welcoming effort by the Government to support the real estate market.
- Looking ahead, the Chinese government has planned to maintain GDP growth above 6.5% in the next five years. Meanwhile the People's Bank of China (PBOC) is expected to cut interest rate by 50 bps and required reserve ratio by 150 bps before June 2016. Other relief measures such as the lowering of minimum mortgage ratios and transaction taxes are also expected in 2016. Nancy Cheng, Marketing Director, Beijing Holdways, does not expect cities like Beijing, Shanghai, Guangzhou, Shenzhen and Sanya to ease their home purchase restrictions due to a strong demand.
- David Ji, Director, Head of Research & Consultancy, Greater China at Knight Frank is optimistic about the outlook for the Mainland Chinese property market as housing inventory lowers and completion levels stabilise. Meanwhile the best-performing cities are expected to be among the first-tier cities. Cities along the “One Belt One Road” route, in particular, are also likely to see promising development benefitting from policy support. David expects mass residential prices in first-tier cities to increase 5-8% in 2016 due to solid demand, while mass residential prices in second-tier cities increase by 1-4%.
2016 Mainland China residential price forecasts (overall)
| First-tier cities |
+5% to +8%
|
| Second-tier cities |
+1% to +4% |
Hong Kong:
Residential market
- While Government’s cooling measures are still in place, a potential US interest-rate hike and abundant housing supply in the pipeline have prompted potential buyers adopting a wait-and-see approach. This has led to subdued property sales transaction in recent months. We expect total home sales volume for 2015 to reach around 55,000, down 14% from 2014.
- Only one major property market measure was introduced in 2015, namely the lowering of LTV ratio for self-use homes under HK$7 million in February. With a lifted down-payment ratio, even more homebuyers have shifted to the low-price segment of the market, below HK$10 million unit price took up about 70% of the total sales. In terms of the size of transacted units, over 70% of units sold in the past year were below 600 sq ft.
- A number of buyers have also shifted to the primary market, as attracted by the competitive prices and preferential packages offered by developers. Therefore, the proportion of primary deals reached 27% during the first 9 months of 2015, compared with only 10% in 2010. Thomas Lam, Senior Director, Head of Valuation & Consultancy, Knight Frank expects the trend to continue in 2016.
- While local buyers are moving to the low-price segment, Mainland buyers, in contrast, shift towards the super-luxury segment of the market, despite the on-going Buyers Stamp Duty. During the first ten months of 2015, buyers of 4 out of the top 10 luxury deals were from the Mainland.
- Looking ahead, there will be around 110,000 new homes supply from 2016 to 2020, representing about 22,000 units per year on average. The supply will focus on the New Territories, followed by Kowloon, while Hong Kong Island (about 10%) will see limited supply. In the New Territories, the main body of the supply will cluster in Yuen Long and Tseung Kwan O, while in Kowloon, the supply will concentrate in Kai Tak.
- According to the Fed’s October meeting, an increase in the US interest-rate, likely either in December 2015 or early 2016, is expected to suppress residential price growth. However, significant drop in home prices is not likely as the impact on household mortgage repayment is small. For example, a 100-basis-point increase in mortgage rate will only induce a HK$500 increment in monthly repayment for every HK$1 million mortgage loan (assuming a 20-year repayment payment) borrowed. Thomas expects luxury residential prices to fall 5% in 2016, while mass residential prices could decrease by 5-10%.
- Thomas agrees that going forward, the government should introduce alternative incentives, such as increasing the plot ratio, relaxing building height restrictions to encourage developers to speed up development to increase residential supply.
Office market
- In 2015, Hong Kong office sales market recorded strong performance with several large-scale, en-bloc transactions having been concluded. Mainland companies are expected to continue to buy en-bloc buildings and lease office in CBD in 2016 amid rapid business expansion. They will be the key drivers for new take-up and office acquisition in the next three to five years.
- In 2016, Hong Kong’s Grade-A office rents in core areas is expected to increase 5%, given strong demand for office space and extremely low vacancy rates. Meanwhile, rents in decentralised areas may slightly drop by 5% due to abundant supply in the pipeline.
- Nelson Lam, Director of Commercial Agency at Knight Frank says, “Chinese firms, especially financial institutions, will remain major drivers of both new take up and en-bloc office acquisition next year thanks to the greater cross-border financial integration such as the Shenzhen-Hong Kong stock connect.”
Retail property market
- Meanwhile, the challenging retail environment is likely to persist next year due to diminishing inbound tourist arrivals. We expect prime street shop rents to drop by 10-15% next year, while shopping mall rents are expected to remain resilient with limited supply.
- Paul Hart, Executive Director, Greater China at Knight Frank expects that the high-end retail market will remain sluggish in 2016, thanks to the reduced tourist spending in this segment of the market as a result of a combination of factors including the strong Hong Kong dollar. However he remains positive on the mass retail market which he expects to perform better as domestic consumption remains strong.
2016 Hong Kong property market forecasts (All sectors)
| |
Rents |
Prices |
| Residential |
| Luxury residential |
-5% to -8% |
-5% |
| Mass residential |
-5% |
-5% to -10% |
| Transactional volume |
+5% |
| Retail |
| Prime street shop in core retail district |
-10% to -15% |
-8% to -10% |
| Prime street shop in 2nd tier retail district |
-5% to 10% |
-5% to -10% |
| Prime shopping mall |
+2% to +3% |
N/A |
| Non-core shopping mall |
+5% to +10% |
N/A |
| Office |
| Grade-A office (Core) |
+5% |
+5% |
| Grade-A office (Decentralised) |
0% to -5% |
0% to -5% |