Slowdown forcing Hong Kong developers to reduce prices or delay projects
According to JLL’s latest Hong Kong Residential Market Monitor released this week, amongst Hong Kong projects completed in the first half of 2023, only 55% of units were sold as of the end of June 2023, lower than the average sell-through rate of 78% over the last five years, a sign of the slowdown of residential sales. Since most buyers will likely maintain a wait-and-see attitude, the demand in the primary market is expected to remain under pressure in the second half of the year. Given the current home buying sentiment, developers will have to set realistic and updated prices, sometimes below the prevailing market price, to achieve a decent sales velocity. Developers that are constrained in adapting aggressive pricing strategies should expect slow and cold market responses and may delay launches.
The sell-through rates of the new completion for each year ranged between 76% and 86% from 2018 to 2021. There were 21,200 new flats completed in 2022, and the sell-through rate dropped to 67% due to the pandemic and a weakening economy. Despite the pandemic coming to an end, borders reopened, and only 7,600 flats were completed in 1H23, the sell-through rate further declined to 55%. The primary market recovery has also been slower than expected. By July, out of the projected 20,000 units to be launched this year, only 4,800 units from major projects were launched. Recent project launches, including “La Montagne” in Wong Chuk Hang and “The Grands” in Tokwawan, had lukewarm performances, with 44% and 57% first-day sell-through rates, respectively.
Norry Lee, Senior Director of Projects Strategy and Consultancy Department at JLL in Hong Kong commented, “The overall price index fell by 1.4% in May and June, 12.3% lower than the market peak in 2021. But the transaction volume dropped by over 30% y-o-y. The slowdown in property sales in primary and secondary markets reflects that most buyers have adopted a wait-and-see attitude and are reluctant to buy flats as they anticipate housing prices will drop. The new mass residential projects have to offer a bigger discount to lure buyers. “Coastline II” in Yau Tong is one of the examples where the prices are attractive to buyers, marking the start of a price war. We expect some developers will follow the price cuts later this year while the others may slow down project launches.”
On the other hand, the residential leasing market has returned to an upcycle. Cathie Chung, Senior Director of Research at JLL in Hong Kong said, “Figures from the Rating and Valuation Department show that housing prices dropped in May and June. But the overall rental index climbed 3.2% in the first half of the year, indicating that some of the housing demand has shifted to the leasing market. We expect the rents will edge higher due to the influx of non-local students and talents into the city.”
Chung added that some mainland Chinese cities have recently relaxed mortgage rules for second-time home buyers who have paid off their existing mortgages to revive the housing market. Although Hong Kong has relaxed the cooling measures on stamp duties and mortgage restrictions, it has had no impact on the housing market and the government should open its policy toolbox wider to let the property market regain its normal efficiency.
