Per global property consultant JLL, Hong Kong’s residential market displayed a heightened sluggishness in the latter half of 2023, with buyers exercising caution amidst escalating interest rates and a challenging external environment. Mass residential properties experienced a decline of 3.1% in capital values by November 2023, reverting to price levels last observed in March 2017.
Luxury residential prices also dipped by 4.1% during this period. However, luxury residential rents saw a 4.9% uptick, fueled by sustained demand from potential buyers transitioning to the rental market and an influx of skilled professionals and non-local families.
Overall residential sales remained subdued, with the average monthly transaction volume for the first ten months of the year trailing 25% below the previous four-year average.
Joseph Tsang, Chairman of JLL in Hong Kong, remarked, “Policy relaxations failed to impact the housing market significantly. Developers responded by offering double-digit price discounts to expedite inventory clearance more aggressively than before. The underperformance of the stock market has also exerted a delayed effect on the housing market. While consensus anticipates rate cuts from mid-2024 onwards, local banks may not promptly follow suit due to tight liquidity and existing higher deposit rates relative to mortgage rates. Moreover, despite potential mortgage rate reductions next year, it would be erroneous to assume an automatic rebound in prices. We anticipate a continued decline in housing prices, with mass residential prices projected to drop by approximately 10% in 2024, reaching levels last seen in 2016.”
Tsang believes that significant rebound in home prices is improbable, citing government plans to construct 39,100 subsidized sale flats over the next five years, which would temper demand in the private housing sector. Purchasing interest from mainland Chinese individuals will likely be limited and concentrated in the luxury segment.
Without measures to counteract the downward trajectory, negative equity cases are forecasted to rise to around 30,000 if home prices decline by a further 10% next year.
“The weakening property market will adversely affect the city’s economic growth and consumer spending, and dampen government land revenue, a significant income source,” Tsang noted. “It is imperative for the government to reassess housing policies to bolster the residential market.”
In the Hong Kong land market, as of November, only 14.2% of the targeted revenue for land premiums in the current fiscal year has been achieved, and six government land sites have been withdrawn from tender. With just one quarter remaining in the fiscal year, it appears unlikely that land sale revenue will reach the estimated target of HKD 85 billion.
Due to high interest rates and sluggish home sales, developers are adopting a cautious approach to tendering, potentially leading to more withdrawals in the upcoming months. Such frequent withdrawals of government land tenders will considerably diminish land revenue, impacting funding for future infrastructure projects and market confidence.
In terms of lease modifications and land exchanges, developers are increasingly favoring the traditional land premium application scheme over Standard Rates, prompted by significant declines in land prices. For instance, a developer realized savings of at least 39% by opting for the traditional scheme for the redevelopment of a cold storage facility in Yau Tong into a residential project, compared to using the Standard Rate.
The widening gap between market prices and Standard Rates will undermine the efficacy of Standard Rates in expediting the land premium process, further hindering urban renewal and the development of new areas.
Alkan Au, Senior Director of Value and Risk Advisory at JLL, remarked, “Therefore, it is imperative for the government to reassess land policies to alleviate the current impasse and, at the very least, enhance the likelihood of continuing land sales to sustain the city’s development momentum.”