Total home sales volume for 2015 could drop 14% y/y to around 55,000

Potential buyers' wait-and-see approach cited.

It has been noted that while Government’s cooling measures are still in place, a potential US interest-rate hike and abundant housing supply in the pipeline have prompted potential buyers adopting a wait-and-see approach.

According to a research note from Knight Frank, this has led to subdued property sales transaction in recent months. It expects total home sales volume for 2015 to reach around 55,000, down 14% from 2014.

Meanwhile, only one major property market measure was introduced in 2015, namely the lowering of LTV ratio for self-use homes under HK$7 million in February.

With a lifted down-payment ratio, even more homebuyers have shifted to the low-price segment of the market, below HK$10 million unit price took up about 70% of the total sales. In terms of the size of transacted units, over 70% of units sold in the past year were below 600 sq ft.

A number of buyers have also shifted to the primary market, as attracted by the competitive prices and preferential packages offered by developers. Therefore, the proportion of primary deals reached 27% during the first 9 months of 2015, compared with only 10% in 2010.

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Thomas  Lam, Senior Director, Head of Valuation & Consultancy, Knight Frank expects the trend to continue in 2016. While local buyers are moving to the low-price segment, Mainland buyers, in contrast, shift towards the super-luxury segment of the market, despite the on-going Buyers Stamp Duty.During the first ten months of 2015, buyers of 4 out of the top 10 luxury deals were from the Mainland.

Looking ahead, there will be around 110,000 new homes supply from 2016 to 2020, representing about 22,000 units per year on average. The supply will focus on the New Territories, followed by Kowloon, while Hong Kong Island (about 10%) will see limited supply. In the New Territories, the main body of the supply will cluster in Yuen Long and Tseung Kwan O, while in Kowloon, the supply will concentrate in Kai Tak.

According to the Fed’s October meeting, an increase in the US interest-rate, likely either in December 2015 or early 2016, is expected to suppress residential price growth. However, significant drop in home prices is not likely as the impact on household mortgage repayment is small.

For example, a 100-basis-point increase in mortgage rate will only induce a HK$500 increment in monthly repayment for every HK$1 million mortgage loan (assuming a 20-year repayment payment)  borrowed. Thomas expects luxury residential prices to fall 5% in 2016, while mass residential prices could decrease by 5-10%. 

Thomas agrees that going forward, the government should introduce alternative incentives, such as increasing the plot ratio, relaxing building height restrictions to encourage developers to speed up development to increase residential supply.