- Dampened by social unrest and the COVID-19 outbreak, home transaction volumes fell by 21% quarter-on-quarter in Q1
- Prices at representative estates are down by around 4-8% year-to-date
- The property investment market was at a standstill in Q1 with the number and consideration of major deals falling to the lowest level in over a decade — by 60% and 76% respectively from the last quarter.
CHINA – Media OutReach – 11 March 2020 – Buying sentiment had just begun to pick up as 2020 kicked off, when the coronavirus outbreak sent another shockwave through the market. Both home transaction volumes and prices trended down in Q1 and the outlook is clouded with negative factors.
This quarter the investment market has seen in the number of major transactions and consideration falling to their lowest level in a decade, due to a lack of incentives for both owners and investors to forge transactions.
As the social unrest in 2019 showed signs of easing in recent months, market sentiment improved following the announcement of a relaxation on the mortgage ceiling in Q4 2019 and a breakthrough in the China-U.S. trade talks in early January 2020. Residential transaction volume in terms of the residential Sales and Purchase Agreements (S&Ps) started from 2,762 in January (down 13% month-on-month) and rose to 3,572 in February (up 29% month-on-month).
Mr Alva To, Cushman & Wakefield’s Vice President, Greater China & Head of Consulting, Greater China commented, “The rebound in transaction volume in February, especially in the secondary market, was supported by multiple favorable factors including mortgage incentives which would give the market a short boost. However, considering the increasing impact of the coronavirus outbreak, and growing uncertainty in the global economy, we expect residential S&Ps in March to total 3,900, a slight improvement from the February levels. Based on Cushman & Wakefield’s estimate for March, the total home sales volume in Q1 will be around 10,234 in residential S&Ps, down 21% quarter-on-quarter and also the lowest level since Q1 2016.”
Home prices have softened for two consecutive months as indicated by the government price index. The January index figure recorded a year-to-date drop of 0.1%, while the February index figure is expected to drop by a larger extent under the full-fledged impact of the coronavirus outbreak.
The March index, however, should stabilize in view of the slight increase in sales volume in the month. For individual estates, the prices as of March have dropped by around 4-8% for both mass residential, represented by City One Shatin and Taikoo Shing, and luxury residential, represented by Residence Bel-Air and The Habourside.
Mr To commented, “Home prices are trending down in the face of the technical recession in Hong Kong, as the unemployment rate is expected to rise above 5% following a worsening economic outlook at both the local and global level. However, home prices are unlikely to fall back to the levels similar to the last time when the unemployment rate climbed above 5%. The severe shortage in land and housing supply today against the backdrop of falling interest rate and mortgage incentives provides strong support for home prices — but it also drives down affordability for buyers.”
“However, the coronavirus outbreak situation remains fluid. Although it is widely believed the outbreak will be contained by the second half of 2020, it is unlikely the economy will see an immediate recovery. More shops and business closures are likely to be on the menu with the economic outlook remaining muted, which does not bode well for the residential market in the mid-to-long term. The situation is different from the SARS epidemic in 2003 in which the market was bottoming out after a six-year downturn, and policy support was in place. This time around, the market has just begun to enter a downturn, and whether there will be policy support remains a question.”
The coronavirus outbreak and an extremely cautious market sentiment have nearly brought the property investment market in Q1 to a standstill. As of today, a total of 17 major deals (each with a consideration of over HK$100 million) have been recorded with a total consideration of HK$4 billion. This represented a drop of 60% in transaction volume and a drop of 76% in consideration quarter-on-quarter.
Sales of luxury residential dominated the investment market accounting for 70% of transactions in the quarter, followed by industrial properties (18%) and strata-title office (12%). An increased interest in industrial properties in Q1 contrasted strongly with the lack of retail deals as the sector has been hardest hit under the double impact of social unrest and virus outbreak.
Mr Tom Ko, Cushman & Wakefield’s Executive Director, Capital Markets in Hong Kong, said, “The lack of incentives for transactions, with investors on one side, remaining on the sidelines or bargain hunting and the landlords on the other with strong holding power due to low interest rates, explained the lull in the market. The coronavirus outbreak has exacerbated the cautious sentiment.
Meanwhile, it has also cast a light on industrial properties, such as data centers whose demand has grown amid an explosion in online shopping and remote working due to the outbreak. We also expect more hotel opportunities on the market in the near term as some owners are feeling the financial pressure. But as local investors begin to diversify to other global markets in uncertain times, so will Mainland investors begin to diversify to Hong Kong. We expect these trends have the potential to bring some transactions to the market.”