Property sales down for third straight month in August

Sales plummeted 30.4%, a $18.05b loss compared to a year earlier.

Hong Kong’s property market is under strain as a triple whammy of the rapidly escalating anti-government protests, ongoing trade dispute and China’s economic slowdown weigh on market sentiment, according to a report by banking firm DBS.

For August, sale and purchase agreements for all building units diminished by 22.9% YoY to 5,195 transactions compared to 6,688 transactions recorded a year earlier, data from the Land Registry revealed.

Meanwhile, total considerations for agreements crashed 30.4% YoY to $42.4b, or a loss of $18.05b compared to the $60.94b recorded in August 2018.

Also read: Property sales crash 24.6% to $54b in July

On a monthly basis, sales slipped 19.1% MoM from the 6,380 transactions recorded in July; whilst total considerations also fell by 21.4% MoM from $53.98b, an $11.55b decrease.

The volatile stock market adds to the pressure, with the Hang Seng Index, a reliable predictor of the city’s house prices, dropping 5% from the April peak. DBS noted that property developers suffered some of the largest losses as the property index fell18%.

“Continued financial market volatility does not bode well for upgrading demand/luxury home demand,” the report added.

Furthermore, the secondary housing market activity has been dwindling since the escalation of the protests in July.

According to the Land Registry, 4,084 of the August property transactions were for residential units, a 15% drop from July and a 15.3% YoY fall compared to a year ago. Total consideration for residential units for August amounted to $36.6b, down 17% compared with July and 21.8% lower than August 2018.

“Prospective home buyers have adopted a wait and see approach whilst existing homeowners are not under strong pressure to sell their properties,” said DBS.

Also read: Private home supply for 2019 falls 39% to 15,540 units

In the primary market, DBS observed that developers have put upmarket project launched on hold due to lukewarm interest, instead focusing on selling mass market projects. “So far, market response for mass market developments have been favourable, reflecting solid end-user demand,” the report said.

Currently, the government is aiming to increase public housing supply by raising the allocation of public housing units built on new land to 70% from 60%. This would result in less land sold via government tender for private residential developments, the report noted.

DBS also warned that the current market situation could result in tighter credit conditions as banks become more reluctant to lend. Mortgage lending for residential property purchases amounted to $1.39t in March, with lending to property developers accounting for a further $1.57t.

“[We forecast] a mere 5% growth in housing prices in 2019 (to drop 3% from June peak) and decline of 0-5% in 2020,” DBS commented as a result of lending and credit conditions.

Also read: Less Hong Kongers expecting home prices to rise

“That said, the retreat in housing prices will unlikely trigger a broad market sell-off given its solid fundamentals,” the report added, noting that the delinquency ratio for residential mortgage loans remained low at 0.02% in June; whilst the risky loans-private co-financing scheme only accounted for 1.9% of total mortgage value.

Furthermore, the outstanding number of mortgages in negative equity declined from 262 cases in 2018 to only a single case in June. The loan-to-value ratio also stayed low at 47.4%. Globally, the US rate cut in July and the dovish global rate environment should also support housing prices ahead, said DBS.

DBS forecasts a “not excessive” supply of around 19,000 new primary units to be completed in 2020-21.

Delays in some government projects are also expected given the current situation. “The land sharing pilot scheme, whereby the government partners with private developers to unlock the development potential of privately-owned agricultural land, and study on land reclamation near Lantau Island are likely to be delayed,” said DBS.

“Against this backdrop, private housing supply growth is likely to be constrained in the medium term, providing support to residential prices. In the event of any demand shocks, the government could consider removing some demand side management measures including Buyers Stamp Duty to support the market,” they added.