Hong Kong – In view of the 2021-22 Budget and Land Sale Programme, Savills commented:
On economy:
Regarding the forecast for the local economy to grow by 3.5% to 5.5% in real terms in 2021 financial year, Mr. Simon Smith, Senior Director, Research & Consultancy of Savills commented: "If we do see a recovery in the economy in the second half, this should help to restore demand in the office market where vacancy has risen from 5% in early 2020 to 8.6% today or 5.3 million sq ft. If low interest rates are maintained, residential prices, though high, should continue to be supported although it looks likely that government will not be relaxing current cooling measures anytime soon. The question is one of timing though, and it looks likely that the second quarter will not be an easy one to navigate."
On retail:
Mr. Simon Smith said, "It's worth remembering that while COVID has hit the sector particularly hard, retail rents have actually been falling since 2013 and are now down by 75% since then so it’s difficult to see much further downside. If social distancing measures and travel restrictions are relaxed from the second half, and with the extra boost given by the issue of electronic consumption vouchers to eligible citizens to encourage local consumption, we are hoping for a strong rebound."
On green cities/the environment:
In view of the government's Green Energy Target to boost the overall energy performance of the Government by 6% by 2024-25, Mr. Simon Smith commented, "It is important to note that commercial and residential buildings are huge consumers of energy, so if Hong Kong is going to meet its 2050 carbon target, the industry has a big role to play in every discipline from town planning to construction. It's likely that many older buildings will not be able to comply with the new sustainability standards and will have to be redeveloped. As an example, 15% of residential stock is over 50 years old."
"It is not simply a matter of social responsibility, landlords increasingly need to meet accepted ESG standards if their real estate holdings are to be both investable and tenantable. There are a number of benchmarks these days including BREEAM and LEED which feed into ESG reporting. In some cases, the need to comply with new sustainability standards may accelerate the refurbishment or redevelopment of older stock."
On Land Sale Programme/land supply:
The 2021/2022 Land Sale Programme includes 15 residential government sites with the capability to provide about 6,000 private units, the lowest estimated annual supply since at least 2011. It is also 43% and 58% lower than the 3-year and 10-year historical estimated annual average from government land sales. For the full year, potential land supply is expected to yield 16,500 private units, 5% more from a year ago.
However, the estimated annual completion for private housing units will average over 18,000 in the five years from 2021, down from 19,600 units estimated last year. The potential shortfall of private residential units over the near to medium term will likely lend support to residential prices, which we forecast to grow in the range of 3-5% in 2021.
The government is also considering rezoning five commercial sites in Kowloon East for residential use, which could yield a total of 5,800 private housing units. According to media reports, all these sites are located within the Kai Tak Development Area and three of them were previously tendered unsuccessfully.
Mr. Charles Chan, Managing Director of Savills Valuation and Professional Services, commented, "However, we expect land supply for private residence will become increasingly limited against the government's increasing focus on public housing. In December 2018, the government announced that the allocation of land supply for public housing would increase from 60% to 70%. In view of this, we believe developers looking to increase land bank will increasingly turn to acquiring lands through compulsory sale or pay a land premium to convert the usage of a non-domestic site to residential usage."
Meanwhile, the introduction of a pilot scheme for charging land premium at standard rates later this quarter is likely to have a positive impact on the industrial investment market. Though details have yet to be announced, the new scheme will likely allow investors to better estimate the cost of land premium and give them more options to decide on the proposed redevelopment. Currently, investors opt for redeveloping modern workshops on an industrial site to avoid the existing lengthy and costly land premium negotiations for converting from industrial to other commercial usage. Of a dozen of en-bloc industrial buildings changed hands in 2020, 75% was for redevelopment purposes. Among those, close to 60% will be redeveloped for modern workshops. This may all change in the coming future with a simplified land premium procedure.