(1 March 2017, Hong Kong) The January Hong Kong Residential Market Survey shows that sentiment surrounding the housing market remained robust in January. This indicates that the market has already recovered from the stamp duty increase in November, despite past episodes of government cooling measures in 2010, 2012, and 2013 resulting in three-to-six months of softer residential property markets.
Momentum remained robust despite demand from mainland Chinese buyers beginning to fade. A net balance of 17% more respondents reported a decrease in mainland demand vs an increase, the second consecutive month where a majority of respondents reported a decrease in mainland demand. This corresponds to a continued crackdown on capital outflows by the mainland Chinese government as fresh restrictions came into effect in January.
Contributors were much more bullish on credit conditions, despite December’s HIBOR increase. Credit conditions are now expected to remain flat over the next three months, in line with market expectations that the US Federal Reserve will hold monetary policy steady when it meets next month. This is also indicative of anecdotal reports that Hong Kong banks continue to have abundant liquidity, and have been offsetting HIBOR increases by cutting the premium on lending rates.
Prices continued to see momentum in January as 68% more respondents reported price rises over the last three months as opposed to declines. The index has remained in positive territory since July of 2016, indicating seven consecutive months of positive price momentum. Volumes are also expected to increase in the coming three months, after consecutive months of a softer outlook. The expected pickup in transactions, which was spread fairly equally across the New Territories, Kowloon, and Hong Kong Island may have been partially driven by a net increase in agreed sales over the last month.
Price and sales expectations remained fairly level for the next twelve months, with a net balance of 38% more respondents expecting an increase in both prices and sales over the next year then are expecting a decrease. The results are little changed from the December survey, and again spread relatively evenly across each region. Respondents are forecasting a 2.2% increases in headline prices over the next year, not significantly different than the 2.9% forecast in the December survey. However respondents see prices on Hong Kong Island falling 0.1% over the next year after forecasting a 3.5% increase over the same period in the December survey.
Some of the recent momentum in the lettings market subsided in the January survey. Respondents indicated that momentum in tennant demand is slowing, as are rental expectations over the next three months. However a majority of respondents continued to report an increase in both metrics rather than a decrease. Rents are now expected to increase 1.9% over the next twelve months, considerably less than the 4.3% forecast in the December survey.
There remains a high degree of uncertainty in the outlook. Demand from the mainland will continue to be influenced by the Chinese government’s actions to reign in leverage. Meanwhile, economic activity and credit conditions remain highly sensitive to US economic policy, the direction of which is still fairly unclear.