Relaxation of Measures Affects Specific Market Segments

• The price of luxury apartments in Hong Kong Island and Kowloon dropped by 1.2% to 1.7% QoQ, while luxury apartments in the New Territories experienced the highest decline at 2.8%.

• Primary launches have not shown the expected benefits and land sales market remained weak.

• The luxury segment is witnessing distressed sales, while the more affordable luxury segment may see a boost from the influx of Mainland talents.

Luxury apartment prices decline
The past month witnessed the relaxation of restrictive measures in the housing market, including a reduction in Buyer's Stamp Duty (BSD) and New Residential Stamp Duty (NRSD) from 30% to 15% in total. Additionally, incoming talents buying their first homes can be exempted from both BSD and NRSD, provided they eventually gain Hong Kong permanent residence status within nine years. However, the relaxation’s impact is not benefiting as expected, with volume probably going to rebound instead of home prices. The price of luxury apartments in Hong Kong Island and Kowloon dropped by 1.2% to 1.7% quarter on quarter, while luxury apartments in the New Territories experienced the most decline at 2.8%.

Mixed response to relaxation measures on primary housing launches and weak land sales market continues
The impact of this relaxation on primary launches has been mixed. Among the three new launches, NOVO LAND 2A performed the best, with half of the 154 units sold at a 4% price discount compared to the previous batch. On the other hand, SOUTHSKY and KT MARINA 1 received lukewarm responses, with only around 30% of the launched units taken up during their respective launches.

The land sales market remained weak, as evidenced by zero bids received for the latest MTR tender of a residential/commercial site near Tung Chung East Station. Similarly, a government land plot in Tung Chung Town Lot No. 55 at Area 106B had all four bids rejected as the tendered premiums fell short of Government’s reserve price. The cautious attitudes among developers in this challenging market and the reliance on future infrastructure and development were contributing factors to these dismal responses.

Rate hike and time deposit surge impact housing market
The recent rate hike has led to higher mortgage rates, making it more challenging for potential homebuyers to secure adequate financing. Additionally, an increase in time deposit rates from close to 0% two years ago to 4% to 5% for larger deposits has resulted in a significant surge in time deposits, reaching over HK$9,100 billion in September 2023 from HK$5,600 billion in January 2022. This increase in time deposits represents a substantial amount of funds that could have otherwise been injected into the housing market.

Luxury distressed sales persist, but incoming talent offers hope for affordable luxury market
Distressed sales have been prevalent in the luxury segment, with notable examples such as the sale of 5/F of OPUS on the Peak by receivers for HK$420 million. The transaction price was at a significant discount compared to market valuation and bank loans, indicating a haircut by lending banks to facilitate the deal. Furthermore, large townhouses and detached houses in the hands of receivers have also been made available for sales, but genuine buyers are lacking.

However, the recent relaxation of stamp duties for incoming talent may have a positive impact on the more affordable luxury segment. Up to end of October, there were a total of 9,782 applicants approved under Category A (with annual income over HK$2.5M) of Top Talent Scheme, assuming 60% of them had already arrived, there would be 6,000 additional housing demand for the local market.  Even assuming as low as 5% to 10% of them would consider buying, that would be 300 to 600 additional luxury purchase demand over the next 12 months, mainly in the price bracket of $50M-$100M.

Affordable luxury shows potential
The mass market is currently experiencing a bear market, as home prices have fallen below the 36-month moving average for consecutive 12 months. The duration and severity of this bear market depend on factors such as potential rate cuts and the rebound of the Hong Kong and China economies, which may receive a slight boost from recent US-China diplomatic developments.

The super luxury segment continues to face oversupply issues, with over 100 houses available in the market. Primary transaction volume is expected to remain extremely low, with distressed sales likely dominating the market for the next 6 to 9 months. Super luxury prices, which have already declined by 25% to 30% over the past 18 months, may see an additional 15% to 20% decline over the next 12 months. However, the more affordable luxury segment ($50M-$100M) may benefit from the continuous influx of Mainland talent.

Mr. Jack Tong, Director, Research & Consultancy of Savills commented, “Primary launches not as beneficial by the recent relaxation as expected, with volume probably going to rebound instead of home prices.”

Ms. Cherrie Lai, Senior Director, Head of Residential Sales, Development & Investment, Prestige Home, Savills said, “While the super luxury segment may continue to be dominated by distress sales, demand for the more affordable luxury products may be boosted by Mainland talents' influx.”