In My Blog in mid-July, I shared some of my observations on the private residential market, including a foreseeable substantial increase of housing supply in the coming few years; a narrowing gap between the prices of first-hand and second-hand flats or, in some cases, first-hand flats cheaper than second-hand flats in the same district; developers actively putting up their first-hand flats for sale, and intensifying competition in the property market. My intention was to give the public a more comprehensive picture of the private residential property market, which has undergone some fundamental changes due to the current term government’s efforts to increase land supply over the last few years. At the same time, I also wished to make clear some concepts to avoid misunderstanding of certain news reports.
Now that two months have passed, I would like to reiterate two points and add another here:
(1) The property price indices most commonly referred to reflect the property prices in the secondary market but not those in the primary market. Therefore, when the second-hand property market is sluggish, the indices are susceptible to the impact of individual transactions with special situations, for example when buyers are willing to pay extra high flat prices for some particular reason. In addition, the price indices announced by the Rating and Valuation Department (RVD) are lagging indicators. For instance, the private residential price and rental indices announced last week were record highs, but they only reflected the situation in July and not changes in the market over the past two months. As I mentioned in July, the current overall transaction volume for residential properties is hovering at a record low since 1997, and the overall transaction volumes for residential properties in 2013 (50 700) and 2014 (63 800) were far lower than the levels during the property market booms of 1997 (172 700) and 2010 (135 800). Moreover, the proportion of first-hand flat transactions to overall residential flat transactions has risen to a 10-year high (i.e. since 2005).
(2) The supply of new residential flats is increasing progressively. As at the end of June, the potential first-hand flat supply over the next three to four years was estimated to be 83 000 flats, some 28 per cent above the figure as at the end of June 2012 when the current-term Government took office, and also higher than the figures I quoted in July. This potential supply is anticipated to remain at a high level. Among these 80 000 or so flats, nearly 70 per cent will be small and medium-sized flats with a saleable area under 70 square metres. At the same time, another 11 300 flats will be provided by a batch of sites for which the procedures of land premium payment have been completed or the tender procedures will soon be completed. As for private housing flat completions, the RVD estimates that the number of flat completions next year will reach some 20 000, about 70 per cent more than the average for the past 10 years. In fact, for flats under construction, the average annual number over the past three years (2012-2014) is about 58 per cent above that of the preceding five years (2007-2011).
(3) Over the last two months, the sentiment of the Hong Kong and global economies has kept fluctuating and the economic outlook has become more uncertain. According to the first Half-yearly Economic Report 2015 announced last month, although the Hong Kong economy expanded by 2.8 per cent year-on-year in real terms in the second quarter of 2015, there are enormous challenges ahead. The global economic performance has been weaker than expected so far this year, resulting in a region-wide setback in exports and a growth slowdown in Asia. Like many other Asian economies, Hong Kong’s total exports of goods slackened to a decline in the second quarter, down by 3.6 per cent in real terms over a year earlier. In addition, the slowdown in inbound tourism continued, with visitor arrivals decreasing over the last two months and per capita visitor spending continuing to decline. The value of total retail sales in July this year decreased by 2.8 per cent year-on-year, while the values of sales of apparel, medicines and cosmetics, jewellery, watches and clocks, and valuable gifts recorded relatively substantial drops. Furthermore, amid increasing volatility in the global financial market, the local stock market has experienced considerable fluctuations over the last two months. At one point the Hang Seng Index was nearly 30 per cent down from its peak in May, and it is still over 20 per cent lower. Looking ahead to the second half of the year, Hong Kong will continue to face a number of external uncertainties, including the pace of the US interest rate increase, the absence of recovery in the European and Japanese economies, as well as the down-drag on the Chinese economy which is the most influential to Hong Kong. Hong Kong will bear the brunt in the case of any upheavals in the Chinese economy.
Against such a background, aspiring home-buyers should exercise extreme caution in their decision-making, and carefully assess the potential risk and their own level of affordability.
Meanwhile, I will work relentlessly on increasing land supply. To solve Hong Kong’s housing problem at source, the most fundamental way is, after all, to increase housing land supply. Before large tracts of land can be turned into a liveable community, we must go through large-scale and comprehensive planning, conduct various relevant technical assessments and put in place the required infrastructure and supporting facilities. As such, it usually takes more than a decade to complete the process from land development to flat completion. If compensation and relocation of a large number of squatters and/or brownfield sites are involved, the time taken will be even longer. Consequently, the work on land supply requires sustained effort and should not be allowed to falter due to short-term fluctuations in the property market. I hope that the public will continue to support our work on this front, and help us in solving Hong Kong’s housing problems.
13 September, 2015
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