(June 10, 2022)
Market Highlights
While both the brand new and secondary residential market seems to be on its way to recovery with surging transaction volumes, the SAR government just announced the news in late May on the long-waited redevelopment of Kowloon City which is expected to provide 4,350 residential units (with average size of 400 sf each) by phases, from 2034 to 2038. This of course will not ease off the current high demand in the residential market. Nonetheless, it is still a welcoming news for this kind of supply in the area as it involves the fringe of the traditional higher end residential market (Kowloon Tong) where the “old money” lies. There is no such kind of supply in this area for years. It will reshape Kowloon City and probably bring up the prices of the nearby luxury units immediately. Nonetheless, this redevelopment takes 12-16 years to fully complete which is longer than expected. It will be good if this project can move faster as it will help to improve the living standards of the existing residents of the area. Tsuen Wan West is a successful example of similar kind of redevelopment.
While the above redevelopment needs a more time, there were two similar size development is currently under planning and their target completion are much sooner.
In Lai Chi Kok, the Far East Hotel Consortium is going to develop the block of land behind their ex-amusement park, “Lai Yuen”, and is now applying for residential development. This plot of land is estimated to be developed into 1.4 million square feet of residential space or about 3,500-4,000 units. Construction work is expected to start in 2023 with completion by two phases. The first phase will probably finish in about 3 years while the second phase is estimated to be completed in 2028.
In Fo Tan, the redevelopment of 24 industrial buildings led by Cheung Kong Group is moving ahead but not at full throttle. The Group’s target is to complete project in 3 phases with a total of 4,706 residential units. The first phase of 300 units is expected to complete in 2026 followed by the second phase of 1,793 units in 2028. The final phase of 2,613 units is uncertain yet as it involves acquisitions of various blocks of industrial buildings in the area and no concrete action yet. The acquisition part is the major challenge of this final phase as the ownerships of those industrial units are scattered among individual owners which makes it hard for negotiations.
We only expect to see a steady growth
In our opinion, the residential market will probably become stablized with only steady growth in prices with the following reasons:
- There is about 60% of the residential units in Hong Kong are mortgage free now. This means these owners will have less incentives to change unless their existing units can bring in a substantial capital gain where they can upgrade their units without additional financial burden.
- There is no room for speculations when Government’s special stamp duty policy is still in place. Such policy is not expected to uplift in near future. This means prices may not see a big jump unless there is a sudden growth in demand such as the influx of wealthy immigrants.
- In anticipation of continuous emigration, local people may need to sell their properties and this may lead to downward pressure in prices. Nonetheless, it is unlikely to see lots of fire sales again, like those in 1Q2022, as people will have better planning now instead of rushing.
- By the same token of emigration, some potential buyers may change of their plan by not buying properties in Hong Kong and this may drive down the demand.
- The SAR Government is looking at various possibilities to increase the supply of residential space, especially the development plans in Lantau Island and northern territories of Hong Kong. This will definitely help to improve the supply.
- Increasing interest rate, however; may have minimal impact to the property market as it is likely that we will remain in a low interest rate environment. The magnitude of increment is not expected to be a big leap. Hong Kong has not yet followed the US government over the recent interest rate hikes. Furthermore, the government’s special stamp duty policy has been in place for 10 years now. Many of the outstanding mortgage represents probably around 40-50% or even less on the property price, this means interest increment will not create substantial burden to mortgagors.
In short, demand is easing off while supply is going to increase, price is expected to grow at moderate rates.
