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Rabu, 10 Juni 2020 14:00:00

As outbreak eases, home transaction volume rises to a 12-month high despite cautious market outlook

Residential Sale & Purchase Agreements in May rose to 5,984, the highest level in the past year
Prices at representative estates are down by around 0.5%-10.8% year-to-date
With 19 major deals, the property investment market has not rebounded yet in Q2 as buyers and vendors remain on the sidelines amid the continuous uncertainties. 

HONG KONG, - 9 June 2020 - As the local coronavirus outbreak gradually eased in Q2, buying sentiment was boosted by the launch of a round of primary residential projects. Both home transaction volumes and prices trended upward.

The investment market experienced another quiet quarter as major deals fell to the second lowest quarterly level since the Global Financial Crisis (GFC), against a backdrop of low incentives for both owners and investors to forge transactions, and a general wait-and-see attitude.

Property transaction volumes in terms of Sale and Purchase Agreements (S&Ps) continued to rebound from Q1 levels, and most significantly in May, reaching 7,071 from 5,015 in April, or up 41%. At 5,984, residential S&Ps in May also grew by 46% from the April record, which was the highest in a year. As new projects continued to launch amid slower sales in the secondary market due to a shift in sentiment, a forecast of 5,500 residential S&Ps is expected in June. That would bring the total residential transaction volume in H1 2020 to 25,790 residential S&Ps, the second lowest in a first half since 2009.

Mr Alva To, Cushman & Wakefield's Vice President, Greater China & Head of Consulting, Greater China commented, "Transactions were constrained by the coronavirus outbreak during the first quarter, and when the local outbreak began to ease in Q2, pent-up demand, mainly focused on primary projects, pushed up the transaction volume to its highest level in the past 12 months. However, the increase may be temporary, as the unemployment rate continues to rise. The full impact of that on the residential market will be clearer in the second half of 2020, and that will affect the market trend."

After contracting for three consecutive months, home prices were up slightly in March and again in April, according to the government's price index. For individual estates, mass residential prices were relatively stable, with those in City One Shatin posting an increase of 4.0% while those in Taikoo Shing fell slightly by 0.5% quarter-on-quarter. The performances in both, however, were an improvement over Q1. Luxury residential price trends varied, as Residence Bel-Air saw a drop of 1.8% while The Habourside was down by 6.7% quarter-on-quarter.

Mr To commented, "Home prices softened for the most of Q2, but after pent-up demand unleashed a solid round of transactions, home prices have seen an uptick in recent weeks. Strong liquidity in the market recently has also boosted asset values and given support to home prices, leading to a smaller drop in H1 than previously expected. As a result, home prices, as represented by some popular estates, are in general down by 0.5 to 10.8% year-to-date. Given that the market outlook is still clouded by a rising unemployment rate, a forecast of negative GDP growth, worsening China-U.S. tensions, as well as potential economic consequences arising from global and local uncertainties, we expect home prices to remain under pressure in the coming quarters and likely to fall by another 5% in the second half of the year, depending on the development of the pandemic and economic performance."

The cautious sentiment in Q1 2020, when activity in the Hong Kong property investment market was at one of its lowest levels, extended into Q2. As of today, a total of 19 major deals (each with a consideration of over HK$100 million) have been recorded, representing a 32% q-o-q and 71% y-o-y drop, and making Q2 the second lowest in quarterly volume since the GFC. If the West Kowloon commercial site (sold to Ping An by Sun Hung Kai Properties) were excluded, total consideration amounted to HK$4.3 billion, representing a drop of 42% in consideration quarter-on-quarter.

As in Q1, luxury residential again dominated, accounting for more than half the major deals in the quarter. More major retail deals (4) were recorded in Q2, while the number of strata-title office and hotel deals was around the same as in Q1. Without new incentives on revitalization projects, industrial deals were absent this quarter. In terms of consideration, retail deals accounted for 7% of the total consideration, mostly due to the sale of the retail shops at Cosco Centre in Sheung Wan by New World Development.

Mr Tom Ko, Cushman & Wakefield's Executive Director, Capital Markets in Hong Kong, said, "From 2009 to 2018, there were at least 200 major non-residential deals per year on average. That number dwindled to around 100 in 2019, and it looks set to tumble further this year. The impact of the coronavirus outbreak aside, a poor rental outlook for CRE, as well as a lack of incentives for landlords holding properties with low LTV ratios to sell amid the low interest rate environment also explained the lack of commercial real estate transactions. A gap in price expectation between vendors and buyers thus ensues."

"As these factors will continue to cloud the market outlook in the near-term, we expect both buyers and vendors to remain on the sidelines. Upon clearer developments in the coming quarters, investors will be able to better reassess the need for diversification which will help spur more activity in the market." (*).