I shared in my blog in July and September of last year some figures and observations on the private residential property market, with a hope to help members of the public make objective analysis and judgment by providing them with comprehensive information. Over the past year, the market witnessed some developments and changes. I would like to share some latest figures here, so that the public can have a more comprehensive grasp of the latest market developments.

The Price Indices

Recently, there have been comments that the property market trend has reversed the downward adjustment, as the Private Domestic-Price Index (Index) has been rising for two consecutive months according to the data released by the Rating and Valuation Department earlier. Nevertheless, it should be pointed out that the index has a time lag and it merely reflects the market situations of March and April. In fact, property prices have dropped for a few straight months since the historic peak in September last year, recording a drop of over 10 per cent by the end of February this year. The index provided by property agents in the market also indicated that the weekly residential property prices only hovered within a narrow margin in May and June, and the lately released index for early July was similar to that for early April. Moreover, both indices reflected only the property prices of second-hand residential units, instead of the situation of the first-hand property market.  Real estate developers have been aggressive in the past few months by providing discounts, special offers and high loan-to-value mortgage to home buyers.

Transaction volume of residential properties

Since the Government launched the demand-side management measures in October 2012, the overall transaction volume of residential properties has remained at a low level for a considerable period. Transaction volume for the first half of 2016 shrank further by 38 per cent and 16 per cent compared to the first half and second half of 2015 respectively to about 19 900 (Figure 1). First-hand flat transactions accounted for some 27 per cent of this total, staying at a relatively high level by in recent years. Although the transaction volume in the latest three months rebounded to about 4 600 cases per month, it is still 10 per cent lower than the same period last year.

Non-local residents purchasing residential properties in Hong Kong

Some mortgage agents in the market said earlier that the trend of Mainland buyers purchasing residential properties in Hong Kong had rebounded for various reasons. It is claimed that the proportion of local residential flats purchased by Mainland buyers among the overall transaction volume had increased for three consecutive months to about 10 per cent. However, according to our information, the proportion of local residential flats purchased by non-Hong Kong Identity Card holders among the overall transaction volume accounted for only about two per cent. This relatively low figure is comparable to the long-term average since the Government’s introduction of the Buyer’s Stamp Duty (BSD) in October 2012. There is no apparent upward trend yet. It can be seen that the BSD is still able to rein in non-locals’ demand for Hong Kong properties in general. I also note that some market players speculated that Brexit would cause an influx of capital into Hong Kong’s residential property market. In spite of my reservation about such speculation, the Government will continue to closely monitor the situation. Hong Kong is still not in a position to lift the demand-side management measures at this moment.

Future supply of residential units

As of March, the potential supply of first-hand residential units for the next three to four years was 92 000 units, about 40 per cent higher than that at the beginning of the current-term Government. We estimate that the end-June figure, which will be announced later, will be more or less the same. Over the past five years (from 2011 to 2015), private housing sites could provide around 89 000 units, 20 000 units more than the number of first-hand units sold during the same period. This surplus can help make up for the supply shortfall over the past years (Figure 2). As for the number of private residential units under construction, the figure for the first five months of 2016 was 15 700 units, exceeding the average of the past five years (14 900 units) (Figure 3). If the trend continues, the number of flats under construction for the full year of 2016 may hit a record high since 2001. As for flat completions, according to the projection of the Rating and Valuation Department, about 18 000 units will be completed this year, 60 per cent more than the average of the past ten years.

Pre-sale consents

In the first half of 2016, the Lands Department (LandsD) issued pre-sale consents involving 8 400 residential units, at least 50 per cent higher than that in the first-half of the past five years. This reflects developers’ eagerness in applying for pre-sale consents. As at end June, 32 pre-sale consents were pending LandsD’s approval, involving almost 14 000 residential units. Among these, more than 90 per cent are expected to be completed by 2018. In fact, it is estimated that 24 000 residential units will be completed before end-2018 and eligible for pre-sale consent application.

Market competitiveness

In recent years, we have put up many small- to medium-sized sites for sale, such that it is easier for smaller developers to bid for sites. This enhances competition. According to the information on parent companies specified in the tender documents, the 90 residential sites sold between April 2012 and the end of last year involved 53 different developers. The majority (34 developers) of them only successfully bid for one site (including partnering with other companies in bidding); nine developers successfully bid for two sites, and four developers won three bids. Such a diversification of market share would provide the public with more choices. Individual developers cannot easily dominate the pace of supplying first-hand residential properties, leading to considerable competition in the future supply of residential properties.

The situation of negative equity

Earlier this year, there were comments that there might be a return of a large number of negative equity cases in Hong Kong’s property market as in the 1997 Asian financial crisis, and that the Government should lift the demand-side management measures. However, as I explained in my blog in February of this year, the transaction volume, loan-to-value ratio, mortgage interest rates, liquidity in the banking system and other aspects at the peak of the property market were all different from those in 1997 and things should not be compared in the same light. The Hong Kong Monetary Authority announced earlier that about 1 400 residential mortgage loan cases were in negative equity in the first quarter of 2016. Although there was an increase compared with the previous quarter, it only accounts for about 0.3 per cent of all residential mortgage loan cases. It was totally different from the situation in 2003 when there were more than 100 000 negative equity cases.

Conclusion

Market information can be very complex and sometimes partial. Potential home buyers need to be careful and level-headed when analysing information and making judgments. Apart from housing supply and demand, there are a series of factors affecting the property market, such as the global economic conditions, potential impact of Brexit, interest rates, as well as Hong Kong’s economic and employment situation. There are many uncertainties in this year’s economic prospects in the Mainland, Europe, America and other regions. Challenges also lie ahead in the local economy. The public therefore should be cautious when considering buying flats.

The Government will continue to steadily supply housing land, and closely monitor and analyse the latest situation of the market in a comprehensive and objective manner. We will also stay composed in the face of short-term market volatility.