Hong Kong New Home Sales Hit 11-Year High After Property Curbs Removed

Krystal Chia wrote . . . . . . . . .

Hong Kong’s new home transactions hit an 11-year high in March, an encouraging sign for the beaten-down property market after the government lifted cooling measures.

There were close to 4,200 sales in the period, more than 14 times the figures from the prior month, according to real estate agent Midland Realty.

This comes after Hong Kong authorities scrapped property curbs in late February to revive the sector. Developers are counting on the pickup in sales to reduce excess inventories that are keeping a lid on prices.

“We think that the strong sentiment for firsthand transactions should extend into April,” said Sammy Po, chief executive of Midland Realty’s residential division for Hong Kong. “Even if non-Hong Kong buyers are asking for lower prices, they are showing a much higher level of interest to purchase a property.”

Part of the reason for the climb could be the launch of several new projects, including Wheelock Properties Ltd.’s Seasons Place and Henderson Land Development Co.’s Belgravia Place. Both have recorded strong results.

Over the long weekend, CK Asset Holdings Ltd. released more units of its Blue Coast development on the southside of Hong Kong Island, attracting 50 times more bidders than available apartments. It launched more units on Tuesday.

Blue Coast is “very affordable,” and the developer is very confident about sales, Executive Director Justin Chiu said at a news briefing. Agent data has indicated that more than a third of the bidders are from mainland China, although final results have yet to be determined ahead of the ballot to be drawn on Saturday, he added.

CK Asset expects to reap HK$8.8 billion ($1.1 billion) from the sale of 422 units in total.

Still, Hong Kong’s residential market may continue to weaken this year, with UBS Group AG expecting values to decline 5%. Buyers’ interest in new homes are also set to add pressure on prices in the secondary market.

Source : BNN Bloomberg

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Read also at China Daily

Shenzhen buyers storm HK after property curbs lifted . . . . .

Hong Kong’s Apartment Glut Is Set to Keep Prices Down After Tax Cut

Shawna Kwan wrote . . . . . . . . .

Hong Kong’s home sales have roared back to life since the government scrapped extra property taxes last month. A supply glut means a rebound in prices is likely to take much longer.

While property transactions have jumped sharply in the past two weeks, there is little evidence that values are rising, according to property agents and analysts. The abundance of apartments for sale, together with high borrowing costs and a weak economy, is expected to stunt price growth in the coming months.

Developers are focused on clearing their inventory for now and won’t price homes higher than the market level, according to Sammy Po, chief executive officer of the home division at Midland Realty. For example, the first batch of apartments from Henderson Land Development Co.’s Belgravia Place were priced at a discount and the developer only lifted them in subsequent batches by single digits, despite an overwhelming response.

“There is a lot of inventory in the market,” said Po. “If prices are raised too high, buyers will just go for other projects.” Po doesn’t expect Henderson to hike prices significantly for the remaining units.

A lackluster property market in the past year has led to the accumulation of unsold homes. Residential units available in the primary market rose 6% to 91,300 in the fourth quarter of 2023 from three months earlier, according to Jones Lang LaSalle. By comparison, only 13,000 new homes were sold on average annually from 2021 to 2023, government data show.

“For 2024, we will have a very good figure in terms of transaction volume, but in terms of the pricing, we have to still face negative growth because of the competition in the market,” said Hannah Jeong, head of valuation and advisory services in Hong Kong at Colliers International Group Inc. Jeong expects prices to rise in the fourth quarter after the market absorbs some of the inventory.

Hong Kong’s biggest developers are lining up their project launches to take advantage of the improved sentiment to offload units. CK Asset Holdings Ltd. started to promote its Blue Coast development comprising more than 600 units in recent days.

The second-hand market is in a similar situation. Since the curbs were lifted, transaction volumes have been rising and room for sellers to offer discounts has shrunk to 1% to 2% from 5% to 10%, said Po. But he doesn’t expect prices to go higher than the current level because there are still a lot of homes for sale. If the seller raises the price, the buyer can simply turn to the many other homes available in the market, according to Po.

Hong Kong scrapped extra taxes on foreign buyers and existing-home owners in late February and removed the special duty on sellers who offload their properties within two years of purchase. The latter will lead to more secondary units becoming available for sale, with more than 80,000 no longer subject to the tax penalty, according to Bloomberg Intelligence.

There are more than 41,000 listings on the website of Centaline Property Agency Ltd., Hong Kong’s biggest realtor. Average transaction numbers for secondary homes stood at about 41,000 each year for the past three years.

Secondary home prices in the week ended March 3, which included four days after the lifting of the curbs on Feb. 28, fell 0.8% from a week earlier, Centaline data show. So far, prices are down 2% since the beginning of the year.

UBS Group AG expects home values to decline 5% this year after the tax policy change, versus its previous forecast for a 5% to 10% drop.

Still, the rate of absorption is likely to be faster than previous years as more people snap up multiple homes after the policy change. A buyer purchased all 24 units available for sale in Belgravia Place on Monday for HK$166 million ($21 million), Hong Kong Economic Times reported.

There are cases of investors buying homes in bulk recently, said Jeong from Colliers. The possibility of speculation is a concern for the city, but for now, “the priority is to bring up the economy first,” she said.

Source : BNN Bloomberg

Chart: Residential Real Estate Sales in Hong Kong

Source : Ming Pao

Hong Kong’s Property Market Faces Headwinds Even After Curbs Are Scrapped

Shawna Kwan wrote . . . . . . . . .

Hong Kong’s real estate sector faces an uphill battle even after the government made its most forceful attempt in years to revive the market.

Buyers remain cautious amid high interest rates, ample inventory and a weak economy, analysts said after authorities eased homebuyer levies and mortgage lending restrictions.

The actions, part of sweeping budget measures to revive the financial hub, came after home prices tumbled to a seven-year low and politicians and industry representatives urged for the removal of the stamp duties, which were introduced more than a decade ago to curb demand.

While developer shares jumped after Wednesday’s announcements on expectations that the moves will help to boost home sales, analysts expect prices to stay depressed as long as borrowing costs remain elevated.

“The measures are better than the market expected,” said Sam Wong, an equity analyst at Jefferies LLC. But the impact won’t be significant because “interest rates are still high, creating a negative spread for buyers,” Wong said. He expects home prices to stay flat or drop by low single digits in 2024.

Hong Kong’s mortgage rates remain higher than rental yield, making residential property investment a money-losing proposition. Overall yield for homes stood between 2% and 2.5% in 2023, compared with an average mortgage rate of 3.9% in October, data from the government and mReferral Mortgage Brokerage Services show.

Nonetheless, transaction volume will likely increase after the change, as developers launch more new projects, said Joseph Tsang, chairman of Jones Lang LaSalle Inc. in Hong Kong. He expects home sales will rise as much as 15% in 2024 while prices continue to fall, albeit at a slower pace.

“It will require interest-rate cuts and an economic improvement for prices to bottom out and rebound,” Tsang said.

Until now, non-residents had to pay a combined 15% tax when purchasing properties, while resident buyers who already own a home were subject to a 7.5% levy. Owners who sold their properties within two years of purchase had to pay extra duties. The rate for regular home purchases, which is capped at 4.25%, remains in place.

In addition, the Hong Kong Monetary Authority eased mortgage rules to allow some homebuyers to purchase properties with lower down payments. For example, the maximum loan-to-value ratio for properties worth as much as HK$30 million ($3.8 million) was changed to 70%. Previously, only homes valued up to HK$15 million were eligible for a 70% LTV ratio.

The HKMA also suspended a stress test for home mortgages that required borrowers to reach a certain level of income to cover a potential rise in interest rates.

Real estate has been a pillar of Hong Kong’s growth, underpinning government revenue, economic expansion and wealth creation for homeowners and property tycoons. Following the former British colony’s handover to China, property prices skyrocketed on the back of the city’s thriving capital markets that lured global financiers and ultra-wealthy mainland buyers alike.

The stamp duties were introduced to cool homebuyer demand fueled by plunging interest rates in the wake of the global financial crisis. But they did little to curb prices, which more than doubled from 2008 to 2013.

“Just as past tightening measures failed to cap housing-price gains on the way up, the loosening may fail to quickly stem losses on the way down,” said Eric Zhu, an economist at Bloomberg Economics.

The housing boom made Hong Kong one of the world’s least affordable residential markets. Steep prices spurred frustration among the city’s younger population, adding to social tensions that culminated in the protests in 2019. The scrapping of all anti-speculation taxes in the budget has led some to say that the government cares more about the market’s capital gains than residents’ access to the property ladder.

“It’s not a timely move to remove the measures when Hong Kong’s housing unaffordability is still near its historical high,” said Brian Wong, a researcher at think tank Liber Research Community. “This shows that the government welcomes speculative investments” over citizens’ access to affordable housing, he said.

But even sacrificing affordability is unlikely to bring back the booming market anytime soon. Home prices are likely to remain under pressure this year, said Bloomberg Intelligence analysts Patrick Wong and John Wong.

“Major developers might struggle to raise prices, with unsold new homes at a 20-year high,” they said.

Source : BNN Bloomberg

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Chart: Hong Kong’s Negative-equity Mortgage are at a 20-year High at End-December 2023

The estimated number of RMLs in negative equity increased to 25,163 cases.

Source : Bloomberg

Chart: Heng Seng Index Tumbles for Four Straight Years

Source : Caixin

It Pains Me to Say Hong Kong Is Over

STEPHEN ROACH wrote . . . . . . . . .

There is more to economic vitality than the stock market. But for Hong Kong, the market has always been emblematic of success. Imagine, a small city state with what had long been the world’s fourth largest exchange (it is now fifth, according to Bloomberg data), a global leader of new stock offerings as recently as 2019.

It pains me to admit it, but Hong Kong is now over. A city I once called home and have cherished as a bastion of dynamism has had the world’s worst-performing major stock market over the past quarter of a century. Since the handover to China in 1997, the Hang Seng index has been basically flat, up only about 5 per cent. Over that same period, the S&P 500 has surged more than fourfold; even mainland China’s underperforming Shanghai Composite has far outdistanced the Hong Kong bourse.

Hong Kong’s demise reflects the confluence of three factors. First, domestic politics. For the first 20 years after the handover, its political scene was relatively stable. China was a passive Big Brother. The wheels came off in 2019-20 when, under Carrie Lam, the Hong Kong leadership made the mistake of proposing an extradition arrangement with China that sparked massive pro-democracy demonstrations. China’s response, clamping down through the imposition of a new Beijing-centric national security law, shredded any remaining semblance of local political autonomy. The 50-year transition period to full takeover by the People’s Republic of China had been effectively cut in half.

In the spring of 2019 at the onset of the democracy protests, the Hang Seng index was trading at nearly 30,000. It is now more than 45 per cent below that level at 15,750. Milton Friedman’s favourite free market has been shackled by the deadweight of autocracy.

Second, the China factor. The Hong Kong stock market has long been considered as a levered play on mainland China. For a variety of reasons, the Chinese economy has hit a wall. Structural problems — especially the dreaded three Ds — debt, deflation and demography — have combined with the impact of the Covid pandemic as well as cyclical pressures in the property market and local government financing vehicles. These forces have sparked a three-year bear market that has taken China’s broad CSI 300 index down more than 40 per cent from its spring 2021 peak. Reflecting collateral damage on Chinese enterprises listed in Hong Kong and the city’s China-sensitive services sector, the Hang Seng has fallen 49 per cent over the same period.

Third, global developments. Since 2018, the US-China rivalry has gone from bad to worse. Hong Kong has been trapped in the crossfire. Moreover, America’s “friendshoring” campaign has put pressure on Hong Kong’s Asian allies to pick sides between the US and China. This has driven a wedge between Hong Kong and many of its largest Asian trading partners. Outsize consequences are likely, especially since Hong Kong’s foreign trade totals 192 per cent of its gross domestic product.

There is no easy way out for Hong Kong from the interplay between these three developments. Hong Kong has no political discretion to chart its own course. While the Chinese economic factor might improve, I suspect any rebound is likely to be shortlived in light of lasting headwinds from a shrinking workforce and worrisome productivity prospects. Nor do I see an easy path to the resolution of US-China tensions that would prompt a reversal of the friendshoring trend.

The contrarian would argue, of course, that all this bad news is already discounted in an oversold Hong Kong stock market. China’s recent moves — a raft of government stimulus actions, jawboning, and replacement of the chief securities regulator — might trigger a temporary bounce. However, sceptical investors need to see more from Beijing than just another page from its timeworn countercyclical playbook. Until that happens, Hong Kong is likely to be mired in a trap made in China.

I will never forget my first trip to Hong Kong in the late 1980s. Notwithstanding a frightening, steep landing at the old Kai Tak airport, I was immediately taken with the extraordinary energy of the business community. Back then, Hongkongers had both a vision and a strategy. China was just beginning to stir, and Hong Kong was perfectly positioned as the major beneficiary of what turned into the world’s greatest development miracle. It all worked out brilliantly, for longer than anyone expected. And now it’s over.

Source : FT

Chart: Hong Kong Rating and Valuation Department Private Residential Property Price Index Down for 2 years

See large image . . . . . .

Source : Ming Pao

Chart: Hong Kong’s Negative-equity Mortgages Are at a 20-year High

Source : Ming Pao

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Source : Bloomberg

Hong Kong Is Becoming Less of an International City

Vegan restaurants do not usually serve beef. But 2084, a plant-based joint in Hong Kong’s New Territories, hopes doing so will help it attract more customers this year. “All the expats are gone,” says Naz Farah, the owner. “Now a lot of mainland Chinese are coming and they don’t like vegan food.” Across the road a once-popular Western takeaway has already closed. A bustling Chinese restaurant stands in its stead.

The demography of Hong Kong (with a population of 7.5m) is changing as the city tries to reverse a brain drain that has seen around 200,000 workers leave in recent years. In 2023 the government lifted strict pandemic controls and announced a slew of new visa schemes. But this “trawl for talent”, as the city’s chief executive, John Lee, calls it, has netted a rather homogenous catch. The city granted just 8,000 visas to Westerners between January and November 2023. Ten times as many went to people from mainland China.

Westerners appear less interested in Hong Kong as a place to live. Many left because of covid-19. But they also complained of China’s tightening grip on the territory. Those who still desire to move there for work have struggled to find jobs owing to the city’s slow economic recovery and changing language requirements. “Every job I applied for required Mandarin, especially in law,” says a woman who trained as a lawyer in Britain, but moved to the city to work as a financial analyst. “Now all the business and corporate work is Beijing-focused. Singapore is really the hub for international work in Asia.”

People from the mainland see things differently. To them Hong Kong offers more freedoms and still has an international feel. When his wife became pregnant, Barry He, a trader in Beijing, successfully applied for a Top Talent Pass visa, which aims to entice high earners and graduates of the world’s best universities. “I think this scheme will give me an opportunity to see the international job market,” he says, adding that he hopes his child will also benefit from a better education. Of the 60,000 Top Talent visas approved between January and November last year, 95% went to people from the mainland.

Previous waves of Chinese immigrants to Hong Kong came mostly from the southern part of the country. They often spoke Cantonese and integrated quickly. But the latest influx comes from all over the mainland, says Eric Fong of the University of Hong Kong. “Integration, if it occurs, may take longer than in the past.” Hong Kongers, protective of their distinct identity, are not always the most welcoming bunch. When a group of mainland children was spotted squatting on a train platform last year (as is customary in parts of China), locals poked fun at them on social media.

But the environment is changing. Mandarin is increasingly the language of choice in boardrooms and in the street. Yew Chung Yew Wah Education Network, a leading international-school chain, plans to offer the mainland curriculum by 2026. And in more troubling ways Hong Kong is looking more Chinese. A national-security law imposed on the city by the government in Beijing has dismantled local democratic institutions. Some residents think that the authorities are actively trying to replace more liberal residents with mainlanders.

Some of these changes cut at the heart of what makes Hong Kong attractive not just to foreigners, but to mainland Chinese. The territory’s appeal is that it is not just another Chinese city. But as the government in Beijing draws it closer, that image is fading. For expats like Ms Farah, it may already be too late. “There’s no connection, no community left,” she says. “I always used to say I would never leave Hong Kong. But now I’m losing hope.”

Source : The Economist