3Q 2012 market overview research & forecast report hong kong residential market colliers international HONG KONG Curbs Unlikely to Cool Prices In the midst of global economic uncertainty and the Hong Kong government maintaining austerity measures, sales activity in the local residential market slowed in 3Q 2012. In the luxury segment, sales activity experienced a deeper deceleration, dropping by 35.7% QoQ, while sales transactions in the top-end market remained stable. market indicators ForEcast overall performance New supply Tenant Demand Incentives rents capital values Despite falling sales volume, the low interest rate environment, low unemployment rate and an increase in the number of high-income households continued to support property demand and prices. The pent-up demand was indicated by the divergence between transaction volume and prices, as end-user demand had been suppressed by tightening policy measures since 2010. During 3Q 2012, luxury residential prices grew by 2.0% QoQ as of August 2012, following the 5.2% QoQ increase in May 2012. The ultra-low interest rate, low unemployment rate and sustained income growth in Hong Kong will continue to support residential demand and prices. The low interest rate environment is expected to continue until 2014-15, prompting property prices upward, but the momentum will be moderated by residential supply measures. The end-user demand had been suppressed by tightening policy measures since 2010, including the Special Stamp Duty (ssd) and lowering of the ltv ratio, which has effectively curbed the secondary sales market. The spill-over of demand from the secondary market to the primary will skew towards the mass sector. In the luxury segment, tight supply will continue to fuel demand and prices. However, the new policy to prevent overseas investors from speculating in Hong Kong, aiming at mainland buyers who are more focused on high-end properties, will not lead to a significant price correction but will further slow the demand for luxury homes. In general, the average luxury residential prices are predicted to increase by 5% over the next 12 months. yields www.colliers.com/hongkong
Sales Market Luxury Residential Sales Activity Sees Deeper Deceleration In the midst of global economic uncertainty and the Hong Kong government maintaining austerity measures, sales activity in the local residential market slowed in 3Q 2012, with the number of sales and purchase agreements of residential units falling 29.5% QoQ to 19,682 during the threemonth period ending August 2012. In the luxury segment, sales activity experienced a deeper deceleration. The number of luxury residential sales transactions over HK$20 million in the three traditional luxury districts of The Peak, Mid-levels and South Side dropped by 35.7% QoQ during the same period. Meanwhile, the number of sales transactions in the top-end market (referring to sales transaction of properties at over HK$100 million) remained stable. Pent-up Demand Indicated by Price and Volume Divergence Despite falling sales volume, the low interest rate environment, low unemployment rate and sustained income growth continued to support property demand and prices. The heated market was influenced by three unusual forces: a weak global economy, abundance of liquid capital and keen demand. The end-user demand had been effectively suppressed by tightening policy measures since 2010 and the pent-up demand was indicated by the divergence between transaction volume and prices. HSBC'S PRIME-RATE BASED MORTGAGE RATES 3.50% 3.00% 2.90% 2.90% 2.90% 2.90% 2.90% 2.50% 2.35% Effective Mortgage Rate 2.00% 1.50% 1.00% 0.50% 0.00% 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 Source: HSBC p. 2 Colliers International
Luxury Residential prices (By Sub-Markets) District 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 3Q 12 3Q 2012 (HK$ / sq ft) (% QoQ) The Peak 285 298 315 330 336 330 323 329 334 1.6% Mid-levels 188 199 206 214 217 207 203 221 223 1.1% South Side 263 273 276 282 279 272 261 271 278 2.6% Overall 244 255 264 274 275 269 263 277 282 2.0% During 3Q 2012, luxury residential prices grew by 2.0% QoQ as of August 2012, following the 5.2% QoQ increase in May 2012. HONG KONG LUXURY RESIDENTIAL PRICE TREND 300 250 200 150 100 50 0 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Index (Jan 2000 =100) Colliers International p. 3
major residential sales transactions Month Property gfa Price (HK$ m) Unit Price (HK$ / sq ft) The peak Jun-12 Strawberry Hill, House 13 3,190 165.00 51,724 Aug-12 Opus Hong Kong, 8/F 6,200 470.00 75,806 Aug-12 Kelletteria, House E 3,198 155.00 48,468 Aug-12 72 Mount Kellett Road, House B NA 283.00 NA Aug-12 8-12 Peak Road, Block A1, 3/F, Flat A 2,980 86.50 29,027 Aug-12 27 Lugard Road 12,460 383.80 30,803 South Side Jun-12 Twin Brook, 6/F, Flat B 2,700 84.00 31,111 Jun-12 Royal Garden, 7/F, Flat B 2,680 89.00 33,209 Jun-12 Scape 4,578 250.00 54,609 Jun-12 Somerset, 29/F, flat A 3,099 88.00 28,396 Jun-12 Redhill Peninsula - Palm Drive, House 36 2,588 69.38 26,808 Jul-12 Grenbelle Garden, House 9 3,273 120.00 36,664 Aug-12 Pine Crest, 10/F, Flat B 2,250 69.20 30,756 Aug-12 Stanley Court, House 23 2,859 55.00 19,237 Aug-12 Radcliffe, 15-16/F 3,620 59.38 16,403 mid-levels Jun-12 Chantilly, 12/F, Flat B 3,600 108.99 30,275 Jun-12 39 Conduit Road, 32/F, Flat A 3,284 130.05 39,600 Jul-12 Seymour, 58/F, Flat A 2,348 72.79 31,000 Jul-12 Kennedy Park at Central, 27/F, Flat A 2,478 89.69 36,193 Jul-12 Villa Monte Rosa, Block C, 11/F, Unit 1-2 4,600 90.50 19,674 Aug-12 Kennedy Park at Central, 29-30/F, Flat A 3,866 188.00 48,629 Aug-12 Kennedy Park at Central, 9/F, Flat A 2,478 71.12 28,700 Aug-12 Grenville House, Block C, D, 9/F, Flat C 3,700 90.00 24,324 Aug-12 Tregunter Tower, Tower 3, 55-56/F, Flat C 3,798 96.80 25,487 Aug-12 Seymour, 59/F, Flat B 1,888 58.53 31,000 p. 4 Colliers International
New Government Measures Package of 10 Short- to Medium-term Measures Chief Executive Leung Chun-ying has been pledging to boost the supply of homes in order to keep housing affordable since he came to power in July 2012. On 30 August, the government presented a package of 10 short- to medium-term measures to expedite the sale of subsidised and private residential units to meet public demand. Timeline October - December 2012 Early 2013 New Measures Sites providing 2,650 flats will be included in the land sale programme for October to December. About 1,760 of the flats are from six sites and no fewer than 894 are from the MTR's residential project at the Tsuen Wan West station on the West Rail Line. Applications for the purchase of 830 Home Ownership Scheme (HOS) surplus flats, 825 of which are at Tin Chung Court in Tin Shui Wai, will begin in early 2013. Five Short-term Steps Five Medium-term Steps Early 2013 2013 Present up to 2016-2017 - - - The My Home Purchase Plan will be amended by changing the rent-to-buy scheme to sell the first batch of 1,000 flats in Tsing Yi directly. The flats will be available in early 2013, and families who earn $40,000 or less a month will be eligible to apply. A Chai Wan industrial building will be converted into a public block of 180 rental units in 2013. The Urban Renewal Authority (URA) will launch two pilot schemes next year to redevelop industrial buildings into flats and commercial offices. Applications for pre-sale consent will be speeded up to release 65,000 flats in the private market over the next three to four years. A recreation site in Cheung Sha Wan will be used for 2,300 public rental homes so the provision of such units can be put forward two years. 480 units under the URA s Kai Tak unit exchange programme will be allocated to the Housing Authority to develop Home Ownership Scheme flats for completion in 2017. The government plans to sell the remaining 4,000 "rent-to-buy" scheme units planned by the previous administration. A total of 36 sites, zoned for "government, institution and community" uses, will be used for private and public housing projects to provide about 11,900 units. Town planning procedures will be streamlined to speed up Housing Authority and URA projects to rejuvenate industrial buildings for homes. Source: HKSAR Government Property Market Defied Government s Efforts The 10-point package is just too weak to cool the property market. It will not have an immediate impact on short-term housing supply and it will not result in a short-term price correction, but it is heading in the right direction. The moves are what the market has long demanded, but the strength is just not sufficient. In the remaining half of 2012, property prices will be supported by solid economic fundamentals, low unemployment rate and sustained income growth. Colliers International p. 5
Site 1, kai tak Area 1H Site 2, kai tak Area 1H Site area 83,658 92,420 Developable floor area 418,290 462,100 Usage Residential (Group B) Plot ratio 5 Height restriction (m) 110 Site coverage (%) 40 Number of units to be built 1,100 Source: HKSAR Government Hong Kong Land for Hong Kong People in Kai Tak Development On 6 September, the government announced that it will put two residential plots at the Kai Tak development area up for sale in 1Q 2013 as part of the Hong Kong Land for Hong Kong People initiative, by which only permanent Hong Kong residents would be allowed to own units for the first 30 years. demand-supply imbalance to continue This initiative will provide more affordable housing but will not bring the demand-supply level into balance or tame soaring prices. Hong Kong Land for Hong Kong People is taken from plots originally earmarked for ordinary private housing. A potential unintended consequence includes the reduction in the amount of land available for ordinary private housing development, which can, in turn, intensify property price increases. Further Tightening Policy by HKMA On 14 September, the Hong Kong Monetary Authority announced further tightening policies to offset the possible inflow of hot money from QE3. 1) The maximum debt servicing ratio (monthly loan instalment-to-income ratio for the household) will be lowered from 50 to 40% if the local second home is purchased for investment purposes and the buyer still has an outstanding mortgage on a first property. If the intention of buying a second flat is for owner-occupation or upgrading, the above regulation does not apply. 2) For mortgage loans based on the net worth of a mortgage applicant, the maximum loan-tovalue (LTV) ratio will be lowered from the current 40 to 30%. For mortgage applicants whose principal income is derived from outside Hong Kong, the applicable maximum LTV ratio will be lowered by 20 percentage points, instead of the current 10 percentage points. Luxury Segment Will See Slower Demand The new property lending tightening measures are not intended to cool property prices but to protect the financial system stemming from rising risks in the property market. They ensure that local home buyers are not over-leveraged and prevent overseas investors from speculating in the Hong Kong markets. Loan-to-Value Ratio is lowered for home buyers whose incomes are derived from outside Hong Kong this category will be non-hong Kong residents not working in Hong Kong, i.e. mainland investors. Given that mainland buyers are more focused on high-end residential properties, the new policies will not result in a significant price correction but will further slow demand at the luxury end. p. 6 Colliers International
Leasing Demand Non-Financial Companies Remain the Key Driver The non-financial companies, such as fashion and apparel, IT, trading or pharmaceutical enterprises, continued to be the key driver of the residential leasing market, as turbulence in the global economy has greatly reduced the role played by the financial sector. During 3Q 2012, residential buildings with 1-2 bedrooms or mid-sized units, which are associated with the non-financial sectors, remained sought after. Meanwhile, those relying on the financial sector (i.e. large-sized apartments or houses) had more vacancies. Due to seasonal factors, there were less expatriate arrivals compared to the previous quarter subsequent to the opening of the school year. Fewer Budgets for Non-Financial Companies Overall housing budgets remained stable in 3Q 2012 compared to the previous quarter after the budget cut across the board at the end of last year. As of the end of 3Q 2012, budgets for staff at junior levels ranged from HK$20,000 to 40,000 per month, middle management levels from HK$40,000 to 130,000 and senior executives HK$130,000 and above per month. Although tenants from non-financial companies were more active, budgets from these tenants had not yet matched those from the financial sector. In addition, multinational corporations retained their tightened housing budgets for staff at all levels considering the uncertain business conditions. Stagnant Rents But Houses Were More Negotiable The overall luxury residential rents registered a mild decline of 0.9% QoQ as of August 2012. Luxury Residential Rentals (By Sub-Markets) District 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 3Q 12 3Q 12 (% QoQ) The Peak 164 172 184 201 207 201 192 197 195-1.0% Mid-levels 133 137 143 145 149 142 140 139 136-2.2% South Side 153 157 161 168 171 166 157 157 157-0.2% Overall 149 153 158 165 169 163 158 158 157-0.9% Landlords of houses with rents at HK$200,000 or above, became more willing to negotiate in the wake of growing downside risks of global economic turbulence and decreasing expatriate demand from the banking and financial industries which have higher housing budgets. HONG KONG LUXURY RESIDENTIAL RENTAL TREND 180 160 140 Index (Jan 2000 = 100) 120 100 80 60 40 20 0 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Colliers International p. 7
major residential LEASE transactions Month Property District gfa Rental (HK$ / month) Unit rental (HK$ / sq ft / month) Jun-12 Tavistock Mid-levels 4,880 250,000 51.23 Jun-12 Branksome Grande Mid-levels 3,030 125,000 41.25 Aug-12 Queen's Garden Mid-levels 2,830 130,000 45.94 Jun-12 No. 127 Repulse Bay Road South Side 2,990 110,000 36.79 Jul-12 The Lily South Side 1,966 132,000 67.14 Jul-12 Repulse Bay Apartment South Side 2,465 100,000 40.57 Jul-12 Harston, The Repulse Bay South Side 2,765 122,000 44.12 Aug-12 Hong Kong Parkview South Side 2,580 133,000 51.55 Aug-12 Stanley Green South Side 2,200 100,000 45.45 Aug-12 Four Seasons Place Central 1,450 116,600 80.41 Investment Market Yield Compression Overall, luxury residential yield of the three traditional luxury residential districts edged down from 2.58% in May 2012 to 2.51% at the end of August 2012, indicating that the growth rate of luxury residential prices had outperformed rents during the quarter. HONG KONG LUXURY RESIDENTIAL YIELD TREND 7.00% 6.00% 5.00% Yield 4.00% 3.00% 2.00% 1.00% 0.00% Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Regarding land sales, a total of six sites were sold via tender during 3Q 2012, in which all sites were designated for residential use; none of the sites were located in the traditional luxury residential districts of The Peak, Mid-levels and South Side. p. 8 Colliers International
Government Land Sale Results 3Q 2012 Residential Sites via Tender Date Lot No. Location Jul-12 IL 9027 Java Road and Tin Chiu Street, North Point, Hong Kong Aug-12 tkotl 115 Area 66D1, Tseung Kwan O, New Territories Aug-12 sttl 567 Area 56A, Kau To, Sha Tin, New Territories Aug-12 Lot No. 678 in dd Peng Chau Peng Lei Road, Peng Chau, New Territories Maximum gfa Lump Sum (HK$ m) Accommodation Value (HK$/sq ft) Purchaser 900,678 $6,910 $7,672 SHKP 297,532 $1,169 $3,929 K.Wah 318,082 $3,038 $9,551 Manhattan Group & Wing Tai Properties 55,973 $81 $1,444 Well Power Electronics Ltd Sep-12 tkotl 117 Area 66C2, Tseung Kwan O 486,565 $2,285 $4,696 Sino Land and K. Wah Sep-12 Lot 674 in DD Peng Chau Tung Wan, Peng Chau 14,372 $31 $2,157 Sino Land Source: Lands Department, HKSAR Government Sites to be offered for Government Tenders between October and December 2012 Location Site area Developable floor area No. of units to be provided Estimated price (HK$ m) Estimated *AV (HK$/sq ft) Tseung Kwan O Area 68A2 229,338 573,344 600 $2,290 - $2,980 $4,000 - $5,200 Tseung Kwan O Area 68A1 171,890 429,726 600 $1,720 - $2,230 $4,000 - $5,200 Area 56A, Kau To, Sha Tin (Site B1) 92,463 142,386 120 $1,280 - $1,420 $9,000 - $10,000 7 Kwun Chung Street, Jordan 2,917 26,275 80 $140 - $306 $5,500 - $12,000 Junction of So Kwun Wat Road and Kwun Chui Road, Tuen Mun 301,392 391,809 178 $1,180 - $2,350 $3,000 - $6,000 Sha Kok Mei, Sai Kung 167,918 251,877 178 $2,520 - $3,020 $10,000 - $12,000 *Accommodation Value Source: Lands Department, HKSAR Government Upcoming Tenders by MTRC Location Site area Developable floor area No. of units to be provided Estimated price (HK$ m) Estimated *AV (HK$/sq ft) Tsuen Wan West (TW6) 149,351 807,946 894 $3,230 $4,000 *Accommodation Value Source: : MTRC Colliers International p. 9
Supply There was no significant improvement in the prevailing tight supply situation in the luxury sector in 3Q 2012. As of August 2012, the overall luxury residential new supply between 2012 and 2014 was 54% below its long-term average of 536 units. OVERALL LUXURY RESIDENTIAL NEW SUPPLY 1,800 1,600 1,400 Number of units 1,200 1,000 800 600 400 Long-term average = 536 units Forecast = 248 units 200 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F projected new supply of luxury residential units in 2012 Development House* Apartment* Developer / Owner No. of units Status the peak 35, 37, 39 Severn Road 42 Plantation Road 3 @ 2-s, - SHKP 7 Completed 4 @ 3-s 1 Gough Hill Road 3 @ 3-s - Lucky Beat Investment Ltd 3 Completed 72 Mount Kellett Road 3 @ 2-s - Sea Holdings Limited 3 Completed 7, 9, 11, 15 Mount Kellett Road 3 @ 4-s 1 @ 5-s Nan Fung 13 Completed 10 & 12 Mount Kellett Road 12 @ 3-s - SHKP 12 Completed 28 Barker Road 7 @ 3-s - Hutchison Whampoa Limited 7 Under Construction south side 9 Shouson Hill Road 31 @ 3-s - SHKP 31 Completed 21 Tai Tam Road - 1 @ 9-s Newman Investment Co Ltd 14 Completed 50 Stanley Village Road 12 @ 3-s - SHKP 12 Completed 6 South Bay Road 1 @ 4-s Hosanto Investmenets Ltd 1 Completed 4 Shek O Headland Road 4 @ 3-s - Century Sino International Ltd 4 Under Construction 20 Repulse Bay Road 1 @ 4-s - Lavender Rose Ltd. 1 Under Construction 60-62 Chung Hom Kok Road - 1 @ 4-s Supreme Faith Ltd 6 Under Construction 12 Stanley Mound Road 2 @ 3-s - Newtown Investment Co Ltd 2 Under Construction 18 Carmel Road 1 @ 4-s - Horizon East Investment Ltd 1 Under Construction mid-levels 10 Bowen Road 1 @ 4-s - Tyronie Ltd 1 Completed 16-18 Bonham Road - 1 @ 30-s Queen Cheers Development Ltd 12 Completed 38-44 Caine Road - 1 @ 31-s Fine Mean Ltd 106 Under Construction 4, 4A, 6, 6A Castle Steps, 2A-E Seymour Road, 23, 25, 27, 29 Castle Road - 1 @ 44-s Swire Properties 126 Under Construction * No. of block @ No. of storey p. 10 Colliers International
Market Outlook The ultra-low interest rate, low unemployment rate and sustained income growth in Hong Kong will continue to support residential demand and prices. The low interest rate environment is expected to continue until 2014-15, prompting property prices upward, but the momentum will be moderated by residential supply measures. The end-user demand had been suppressed by tightening policy measures since 2010, including the Special Stamp Duty (SSD) and lowering of the LTV ratio, which has effectively curbed the secondary sales market. The spill-over of demand from the secondary market to the primary will skew towards the mass sector. In the luxury segment, tight supply will continue to fuel demand and prices. However, the new policy to prevent overseas investors from speculating in Hong Kong, aimed at mainland buyers who are more focussed on high-end properties, will not lead to a significant price correction but will further slow the demand for luxury homes. In general, the average luxury residential prices are predicted to increase by 5% over the next 12 months. In the leasing market, multinational corporations, from the banking and financial industries in particular, will remain cautious in hiring due to uninspiring global economic conditions. Overall housing budgets will remain tight and expatriate family arrivals from the banking and financial industries will stay low, leading to falling demand for luxury houses. On the other hand, the inflow of expatriates from non-financial companies will remain the key contributor to the luxury leasing market. As such, the average luxury residential rent is expected to see a moderate downward adjustment of 5% over the next 12 months. HONG KONG LUXURY RESIDENTIAL TREND 350 Forecast 300 250 200 150 100 50 0 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Index (Jan 2000 = 100) Jan-11 Jan-12 Jan-13 Colliers Luxury Residential Rental Index Colliers Luxury Residential Price Index Colliers International p. 11
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