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

June, 18/2019 - 10:21
Residential market outlook clouded by uncertainties as sentiment cooled after the fastest surge in prices

  • Hometransaction volumes in Q2 hit the highest level in six and a half years, butthe hot market sentiment cooled towards the end of the quarter due to tradetensions and local political issues
  • Prices atrepresentative mass residential estates have surpassed their last peak inAugust 2018 while those of luxury residential properties are within 2% of theirpeak
  • Propertyinvestment market improved over Q1 with office transactions being the highlightof the quarter.

HONG KONG,CHINA - Media OutReach - 18 June 2019 - Total residential sales in Q2 2019 reachedthe highest level since Q4 2012, as the strong recovery and upward momentum inQ1 this year extended into the following quarter, said Cushman & Wakefield,a global leader in commercial real estate services. However, towards the end ofQ2, market confidence cooled in the face of a possible escalation in trade tensionsand political uncertainties. The property investment market improved slightlyin Q2, despite capital from mainland China remaining on the side line, asinstitutional funds became relatively more active and focusing on opportunitiesin the office sector.

 

Total property sales in terms of the number ofSale and Purchase Agreements (S&Ps) climbed 53% month-on-month to 10,128 inApril - 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 inApril and May respectively, surpassing 8,000 for the first time since October2012. 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 firsttwo months in Q1, serving as evidence of the hot sentiment carrying into thisquarter.

 

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

 

Home prices have been climbing for fiveconsecutive months since January. According to government figures, the growthin April alone by 3.2% month-on-month was the fastest pace of growth in morethan six years. Cushman & Wakefield estimated at least another 3% growthfor 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 estateshave recorded growth in prices of over 20% year-to-date, while prices inselected luxury properties have witnessed growth of 10% in the same period.Prices at City One Shatin and Taikoo Shing, for example, have experiencedyear-to-date growth of 26.3% and 20.2% respectively, surpassing their lastpeaks in August 2018 by 1%. Prices for luxury residential represented byResidence Bel-Air and The Habourside still lag behind but are already within 2%of their last peaks.

 

Mr To commented, "A stable and soliddemand for homes, plus an expectation of rate cuts in the year, supported therobust market sentiment for the large part of Q2. Nevertheless, theintroduction of negative factors, such as uncertainties arising from the unevenprogress 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 insales especially in the secondary market, and a relatively flat price trend inthe short term."

 

"However, the market will be able towithstand the impact from negative factors as long as there is no fundamentalchange to the pillars of Hong Kong as an international financial hub, whichapart from political stability, include sound economic fundamentals, healthyand open tax and financial systems, free capital flows, strong infrastructuresand a readily available talent pool," Mr To said.

 

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

 

This quarter, a drop in the share of luxuryresidential transactions from 71% to 44% was met with an increase in share foroffice (en-bloc and strata-title combined) transactions from 8% to 35%. Interms of consideration, the many strata-title office transactions driven by TheCenter, as well as en-bloc office sales such as 625 King's Road and 69 JervoisStreet, drove the growth in consideration over Q1.

 

MrTom Ko, Cushman & Wakefield's Executive Director, Capital Markets in HongKong, said, "Mainland capital remainedtight in Q2. Given Mainland investors' traditional preference for buying luxuryresidential properties in Hong Kong, and in the face of global uncertaintieswhich dampened investment sentiment, this has led to a drop in majortransactions of luxury residential. On the other hand, institutional fundsremained active in big-ticket transactions and kept looking for opportunitiesin the office sector. We expect when there is further progress in theChina-U.S. trade talks, the uncertainties affecting the market will clear upfurther and give a boost to the performance of the property investment marketin the second half of 2019."

About Cushman & Wakefield

Cushman & Wakefield (NYSE: CWK) isa leading global real estate services firm that delivers exceptional value forreal estate occupiers and owners. Cushman & Wakefield is among the largestreal estate services firms with 51,000 employees in approximately 400 officesand 70 countries. Across Greater China, there are 21 offices servicing thelocal market. The company won four of the top awards in the Euromoney Survey2017 & 2018 in the categories of Overall, Agency Letting/Sales, Valuationand Research in China. In 2018, the firm had revenue of $8.2 billion acrosscore services of property, facilities and project management, leasing, capitalmarkets, advisory and other services. To learn more, visitwww.cushmanwakefield.com.hk or follow us on LinkedIn (https://www.linkedin.com/company/cushman-&-wakefield-greater-china)

E-paper