Residential market outlook clouded by uncertainties as sentiment cooled after the fastest surge in prices

• Home transaction volumes in Q2 hit the highest level in six and a half years, but the hot market sentiment cooled towards the end of the quarter due to trade tensions and local political issues
• Prices at representative mass residential estates have surpassed their last peak in August 2018 while those of luxury residential properties are within 2% of their peak
• Property investment market improved over Q1 with office transactions being the highlight of the quarter.

HONG KONG, CHINA – Media OutReach – 18 June 2019 – Total residential sales in Q2 2019 reached the highest level since Q4 2012, as the strong recovery and upward momentum in Q1 this year extended into the following quarter, said Cushman & Wakefield, a global leader in commercial real estate services. However, towards the end of Q2, market confidence cooled in the face of a possible escalation in trade tensions and political uncertainties. The property investment market improved slightly in Q2, despite capital from mainland China remaining on the side line, as institutional funds became relatively more active and focusing on opportunities in the office sector.

Total property sales in terms of the number of Sale and Purchase Agreements (S&Ps) climbed 53% month-on-month to 10,128 in April – the first time above the 10,000 level in 76 months’ time. Similarly, residential sales in terms of residential S&Ps reached 7,822 and 8,208 in April and May respectively, surpassing 8,000 for the first time since October 2012. These two months alone represented a growth in residential sales by 32% from a year ago (April & May 2018), and up 86% from combined sales of the first two months in Q1, serving as evidence of the hot sentiment carrying into this quarter.

Mr Alva To, Cushman & Wakefield’s Vice President, Greater China & Head of Consulting, Greater China commented, “The positive market sentiment was supported by solid pent-up demand and confidence in a positive market outlook, in the face of the steady development of the China-U.S. trade talks during February and March. However, since an escalation in tensions arising from new tariff threats in May sent jitters across global stock markets, plus a change in sentiment due to local political issues, we expect home sales will be down to an estimated 4,500 S&Ps for June, bringing about 8.7% growth year-on-year in Q2 overall.”

Home prices have been climbing for five consecutive months since January. According to government figures, the growth in April alone by 3.2% month-on-month was the fastest pace of growth in more than six years. Cushman & Wakefield estimated at least another 3% growth for May and flat for June, leading to an accumulated growth of 12.6% within H1. In terms of actual prices, by mid-June, some popular mass residential estates have recorded growth in prices of over 20% year-to-date, while prices in selected luxury properties have witnessed growth of 10% in the same period. Prices at City One Shatin and Taikoo Shing, for example, have experienced year-to-date growth of 26.3% and 20.2% respectively, surpassing their last peaks in August 2018 by 1%. Prices for luxury residential represented by Residence Bel-Air and The Habourside still lag behind but are already within 2% of their last peaks.

Mr To commented, “A stable and solid demand for homes, plus an expectation of rate cuts in the year, supported the robust market sentiment for the large part of Q2. Nevertheless, the introduction of negative factors, such as uncertainties arising from the uneven progress in the China-U.S. trade talks and the recent local political issues, will push more potential buyers to hold their decision, leading to a drop in sales especially in the secondary market, and a relatively flat price trend in the short term.”

“However, the market will be able to withstand the impact from negative factors as long as there is no fundamental change to the pillars of Hong Kong as an international financial hub, which apart from political stability, include sound economic fundamentals, healthy and open tax and financial systems, free capital flows, strong infrastructures and a readily available talent pool,” Mr To said.

The performance of the property investment market in Q2 has improved compared with Q1 but the sentiment remained subdued in general. The number of major deals (each with a consideration of over HK$100 million) increased 27% quarter-on-quarter to 66, with a total consideration of HK$34.4 billion that was close to 2.5 times the consideration of Q1.

This quarter, a drop in the share of luxury residential transactions from 71% to 44% was met with an increase in share for office (en-bloc and strata-title combined) transactions from 8% to 35%. In terms of consideration, the many strata-title office transactions driven by The Center, as well as en-bloc office sales such as 625 King’s Road and 69 Jervois Street, drove the growth in consideration over Q1.

Mr Tom Ko, Cushman & Wakefield’s Executive Director, Capital Markets in Hong Kong, said, “Mainland capital remained tight in Q2. Given Mainland investors’ traditional preference for buying luxury residential properties in Hong Kong, and in the face of global uncertainties which dampened investment sentiment, this has led to a drop in major transactions of luxury residential. On the other hand, institutional funds remained active in big-ticket transactions and kept looking for opportunities in the office sector. We expect when there is further progress in the China-U.S. trade talks, the uncertainties affecting the market will clear up further and give a boost to the performance of the property investment market in the second half of 2019.”