Luxury volumes have been volatile over the past few months with the buoyant mood in July quickly dissipating due to a third wave of virus infections and heightened social tensions.
Total luxury volume (HK$20 million +) surged to 282 in July, the highest in 2020, before falling back to 153 in August. The combined number of transactions for the two months (435) was still slightly ahead of the 419 transactions completed in April and May, though.
Though market sentiment was mixed at best, luxury prices on Hong Kong Island and in Kowloon declined more moderately by 0.1% and 0.5% respectively in Q3, as only a handful of distressed assets changed hands. The New Territories market, in particular houses, continued to attract buyers, given the appeal of low density living, ample outdoor space and the availability of parking, and luxury prices rebounded for a second consecutive quarter by 2.6% as a result.
A quick comparison of average house prices by district reveals the substantial price differential between the Peak (with an indicative price range of HK$55,000 to HK$105,000 per sq ft) compared with Sai Kung (where typical average prices range from HK$11,800 to HK$17,500 per sq ft), the latter almost one-fifth of the former. This phenomenon adds to the appeal of New Territories houses to potential buyers, especially for those who did not need to commute to the CBD frequently.
The mass market was in a buoyant mood with reviving interest in the secondary market due partly to lower down payment requirements from Mortgage Insurance Programme. The secondary transaction volume totalled 25,327 over the first seven months in 2020, a 1.4% rebound from the same period last year. The primary market saw fewer transactions as developers held back project launches due to the uncertain environment, while some were more focussed on clearing backlog units with more aggressive incentives.
Looking ahead, the full impact of COVID-19 may be felt towards the end of 2020 if government tapers subsidies and we see more corporate layoffs pushing unemployment rates to new highs. The unemployment rate currently stands at 6.1%. With uncertain economic prospects and a volatile stock market, residential volumes and prices may have to endure a bumpy ride to the end of this year.
Luxury apartment prices on Hong Kong Island have fallen by 8.6% from their previous peak in Q2/2019 and are expected to slip by a further 3% to 5% towards the end of this year given the uncertain environment. Looking into 2021, with economic growth expected to remain weak, unemployment expected to hit new highs and developers likely to accelerate launches, luxury prices may come under further pressure, possibly declining by another 5% to 10%. Low interest rates and ample liquidity will provide some market support. Difficult variables to predict include the containment of COVID-19, future US-China relations, and the possibility of resurgent social tensions.
Mr. Simon Smith, Senior Director, Research & Consultancy commented: “While luxury sentiment remained jittery in Q3, the mass market was in a more buoyant mood with reviving interest in the secondary market partly due to lower down payment requirements. Despite some bright spots, a bumpy ride looks likely to the end of this year.”
Mr. Keith Chang, Senior Director, Realty Investment said: “Houses in the New Territories remain a popular choice for owner-occupiers given their steep discount to island prices and their lifestyle appeal. Luxury apartment prices continue to post modest declines but are being underpinned by a lack of distress, low interest rates and ample pent-up demand.”
Mr. Raymond Ho, Senior Director, Residential Development and Investment said: “Lead by the bargain sale of 37 Shouson Hill Road, prestige sites for redevelopment have begun to regain market focus, with both developers and owner-occupiers taking an interest in this niche segment.”