- At 8,988, the April property S&Ps was the highest in the previous 12 months, signifying strong buying power
- Home prices recorded a growth of more than 10% in popular estates in H1
- Investors continued to favor office sector but have also eyed lower pricing properties.
(11 June 2018, Hong Kong)–Cushman & Wakefield, a global leader in commercial real estate services, pointed out that momentum continued in the residential market in Q2, as the home transaction volume remained solid, and most popular estates saw their prices rising well above the half-year forecast range of 10% year-to-date. The property investment market has been surprisingly robust in Q1, with the number of major deals surpassing that of Q4 2017, setting the stage for the first half of 2018 outperforming the first half of last year.
At 8,988 cases of Property Sales and Purchase Agreements (S&Ps) recorded in April, it was the highest volume recorded in the previous 12 months, and the Q2 transaction volume (first two months in the quarter) is 0.54% up year-to-year, and 12.6% up compared with the January-February period. A strong signal of the solid buying power is the share of secondary sales, which has stayed well above 70% in 2018 thus far. Given a forecast of property S&Ps at 8,500 in June, Q2 2018 is expected to outperform both the previous quarter and Q2 2017.
Mr Alva To, Cushman & Wakefield’s Vice President, Greater China & Head of Consulting, Greater China commented, “The share of secondary sales remained substantial in Q2 and accounted for 86% of total residential sales in May. There are increasing cases of secondary sales as the resale restriction in the form of stamp duties began to expire and thus has freed up some of the secondary supply, but mainly the demand for homes remains keen in face of an upward cycle of home prices. A land parcel in Kai Tak development area sold for record price in May showed that developers are confident in the market outlook, and that home prices are not going to falter any time soon.”
Forecast Price Indices for Selected Popular Developments by end of June 2018
Source: Rating & Valuation Department; Cushman & Wakefield
The uptrend in home prices that began in April 2016 continued into Q2. Compared with Cushman & Wakefield’s forecast of a growth of 10% in price within H1 2018, the government price indices for selected developments showed an increase of 7.2% from January to April, and a growth of 11.5% is expected by the end of June. Meanwhile, the price growth of representative estates has surpassed our estimate. City One Shatin and Taikoo Shing went up by 14.3% and 14.8% YTD respectively, 13.1% up for Residence Bel-Air, and 9.7% up for The Harbourside, which is still close to our forecast of 10%.
Mr To added, “The factors to sustain the growth in home prices still prevail, for example the strong fundamentals, pent-up demand, and the lack of an immediate relief to the shortage in housing supply. We expect developers will be keen to increase their market share with new launches, which will attract substantial buying interest from the public and boosted buying activity. In this regard, we expect home prices will see a growth of another 5% in the second half of 2018.”
Compared with last year, the property investment market has been more robust in 2018 thus far. The keen market sentiment extended into 2018 which resulted in a total of 143 major transactions (each with a consideration of over HK$100 million) in Q1 – An all-time quarterly record-high – and 95 major transactions in Q2 as of today. Given there are about three weeks till the close of H1, we expect the number of major transactions in Q2 will be around 120, making the first half of 2018 with the best half-year performance in the last 10 years.
Breakdown of Investment Transactions (Major Transactions of over HK$100M)
Source: Cushman & Wakefield
Deal size has grown. The total consideration recorded in 2018 so far is HK$120.1 billion, which is 57% of the total consideration of HK$211.08 billion in the entire 2017. The average deal size as of Q2 is HK$505.2 million, already bigger than the average levels in the past 10 years except 2017 (HK$575.5 million).
Mr Tom Ko, Cushman & Wakefield’s Executive Director, Investment & Advisory Services in Hong Kong, commented, “Given the general asset appreciation and the good prospects of certain sectors, we expect the average deal size in 2018 could break new records. Take the office sector for example, where the strata-title sales accounted for 23% off all major transactions in Q2 and a share of 17% in terms of total considerations. The prospect of the sector is boosted by a growing rental outlook. Moreover, the sale of the XRL site in West Kowloon this year will cast a similar effect as the Murray Road site last year on stimulating office prices.”
All sectors of investors from local families, investment funds to mainland investors have been active in making purchases in Q2. Apart from office which is much sought-after but with a low supply, investors also cast their eyes on industrial properties at a lower pricing. The outlook of the industrial sector is boosted by government policies such as the CBD2 initiative, the completion of new infrastructures such as the HK-Macao-Zhuhai Bridge, and the growing business opportunities in the Greater Bay Area.