Wealth Effect Sends S&Ps Surging 66% y-o-y in January and February, and expected to jump to 74% y-o-y in Q1

Home Prices Expected to Rise by 5% in Q2

• Residential market remained most active with
  total transactions rising by 69% y-o-y for January and February combined, and
  expected to jump by 73% y-o-y in Q1
• Investment into non-residential properties continues
  pickup commencing in Q4 2020, with retail and industrial properties remaining
  most favoured

 

HONG KONG SAR – Media OutReach – 11 March 2021 – Strengthened market sentiment helped boost Hong Kong real estate market
growth in Q1, unleashing pent-up demand and transactions in both residential and
investment markets. The wealth effect was amplified by the stabilizing COVID-19
situation locally and the eagerly awaited roll-out of a vaccination program,
both considered prerequisites for sustained economic recovery.

 

Residential
Market

The Q1 period displayed a major rebound in the residential market, driven
mainly by the cash-rich condition of local buyers. Total Sales and Purchase Agreements
(S&Ps) rose 66% y-o-y to 14,200 cases in the first two months of Q1 2021,
while residential transactions leapt 69% y-o-y to 10,687 cases in the same
January — February period. For March 2021, we expect the total S&Ps would
go up to 9,000 cases, bringing the quarterly figure to 23,200 cases. This
represents a remarkable growth of 74% y-o-y, or 7% increase q-o-q.

 

Amidst the
fourth wave of COVID-19,
home prices dropped in the face of surging confirmed cases between December
2020 and January 2021. Taking Taikoo Shing as an example, the average price
declined by 8.3% during the period. In February, with early arrival of vaccines,
strong pent-up demand from predominantly Hong Kong buyers, a booming stock
market and other positive factors, transaction volume and home prices quickly
bottomed out and began to rebound (Chart 1).

The market is adapting
to the post-pandemic new normal. From a macro perspective, the market is currently
imbued with healthier fundamentals compared with previous periods of market turmoil
as a result of the SARS outbreak, the global financial crisis, and other
disruptors (Chart 2).

Mr Alva To, Cushman & Wakefield’s Vice President,
Greater China & Head of Consulting, Greater China, commented, “The wealth effect is being driven especially by gains
from the stock market, quantitative easing measures, and a high 90% loan-to-value
ratio, and the rebound in property sales is now in a growth momentum. The
residential market is rebounding faster than expected, and we expect home price
to rise by 5% in Q2 2021. However, we would advise buyers to remain cautious on
the economic fundamentals throughout 2021. With the unemployment rate at 7% by January
2021, and is still increasing with high speed, this will seriously impact on
the purchasing power and intention to purchase. Moreover, an anticipated overall
economic recovery in the second half of 2021 may also be impacted by the still
rocky U.S.-China relationship and local and geopolitical uncertainties.”

 

Investment
Market

Investment sentiment has been on a recovery track since Q4 2020, following
the rescinding of the Double Stamp Duty (DSD) requirement on non-residential properties
(Chart 3). The recovery momentum sustained the performance of the investment
market in Q1 2021, with retail and industrial properties remaining the most
sought-after asset classes over the near term. Investments into the hotel sector
remained muted with the continuation of border closures between Hong Kong and mainland
China and the rest of the world. Yet, with the number of confirmed COVID-19
cases subsiding and stabilizing, anticipation for a full opening of regional
and international travel may encourage tourism and retail recovery in the
short-run. 

Mr Tom Ko, Cushman & Wakefield’s Executive
Director, Capital Markets, Hong Kong, concluded, “Major
investment transactions (transactions over HK$ 100 million) are expected to
remain at a similar level of Q4 2020. Luxury residential transactions still
contributed to 61% of total investment volume, as a result of the favourable loan-to-value
(LTV) ratio for property investment. The abolition of DSD on non-residential property
investments, on the other hand, has facilitated investment into retail spaces
and industrial assets in Q1. With these favourable factors, together with the
recent pilot scheme to standardize land premium and the influx of deep-pocketed
global real estates’ funds in Hong Kong, we expect an even more positive market
trend to prevail in the upcoming quarter.”