The Hong Kong Property Market Review and Forecast

By: Wantanee Khamkongkaew

2007 represents a unique year for the Hong Kong economy. The year witnessed a proportional increase in growth as the year moved forward. The major reason behind the economic reversal is the domestic demand as private consumption and investment expenditure continued to increase.

In 2007 overseas investors consisting of recent entrants showed faith in the Hong Kong market. China's economic influence on Hong Kong remained to flourish even after being a republic for a decade. The influence was felt over the complete financial spectrum of Hong Kong.

The overwhelming presence of RMB in Hong Kong due to the Territory's overdependance on dollar improves the purchasing strength of Chinese visitors to Hong Kong whenever the value of dollar goes down. The enhanced value of the RMB has influenced the wealthy mainland investors to attain luxury residential properties as reliable long-term assets. High premium Grade A office rents in Central has improved investment in office and property sections.

In addition to this the Government's strong decision on land values, decrease in stamp duty, and reduction in the aggregate of resident owners having negative equity are all reasons behind the renewed interest in the luxury and mass residential sectors. The way different sectors in the market responded in 2007 is reviewed below.

Investment Market :
In 2007 it was calculated that a total of 330 property investment deals priced over HK$100 million were handed over throughout all property sectors, resulting in an increase of 78.4% compared with 2006. The aggregate consideration in 2007 summed up to over HK$94.2 billion, a progression of about 53%. High-end luxury residential properties were in big demand for the investors and end-users. However, the relative shortage of luxury housing stock in the market gave little choice to the purchasers.

Office Market :
The office market had a very good year in 2007. Grade A office rents and sales prices had notable rise of 31.7% and 46.6% respectively over the duration of the year. However vacancy rates in important centers showed no improvement sliding down from 3.8% at the end of 2006 to 2.9% in 2007. Esteemed office space in Central remained in high demand, as underlined by the fact that prestigious grade office buildings were completely leased until the end of 2007. The lack of co-ordination between supply and demand has allowed the landlords in the premises of the core CBD to make good use of the surge in activity.

Retail Market :
After a relatively consistent show in 2006, the retail property market recovered and showed a progressive growth from the second quarter of 2007 as a result of the neck and neck competition between an increasing number of global luxury brands. Rents and capital values recorded improvements. It was increased by 16% y-o-y and 33.8% y-o-y respectively in 2007. The possible threats from brand new tourist spots in Macau was given top priority by the retail market in 2007. However Hong Kong still remains a favourite shopping paradise.

Luxury Residential Market :
Rents and costs for luxury residential properties on Hong Kong Island advanced by 14.1% and 37.9% y-o-y in 2007. The land sale results attained in the six public land auctions took place in the 2007/2008 financial year were refreshing. Distribution of new luxury residential areas decreased in all four traditional luxury residential areas of Hong King, which has been the trend since 2005.

Mass Residential Market :
The mass residential market got two much needed backups in 2007. They are stamp duty reduction for properties handed over for a price below HK$2 million and the interest rate concession by the Hong Kong local bank. The mass residential market in 2007 recorded the most dominant display over the past few years as shown by a surge of 49.8% y-on-y which is indicated by the total residential transaction volume reaching 123,575 units.

When we look into the future the strengthening of capital values seen in 2007 as a result of comparitively short supply of quality property stock will remain throughout the next year. Oppurtunities are expected to increase in the Hong Kong market over the next few years. Thus the Hong Kong market can be expected to react in a positive way but at the same time in a guarded manner.

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