Despite home sales seeing a 15 percent year-on-year surge in the third quarter of 2021, purchase of new housing in Hong Kong began to slow in August, according to a report from property services firm Cushman & Wakefield.
Transaction volumes are expected to shrink further this month, with a narrowing pool of available flats, combined with lower purchasing power from homebuyers, and this trend is expected to add fuel to the city’s already raging home-price increases.
“In terms of property price, overall home prices have risen by 4.3 percent since 2021 and are expected to surpass the peak of May 2019 soon,” said Edgar Lai, director of valuation and advisory at Cushman & Wakefield in Hong Kong. “We expect property prices will rise steadily in 4Q with a further increment of maximum 3 percent.”
But Lai cautioned that, with prices hitting historic highs, both buyers and banks are set to become more cautious about purchases.
Prices Rise, Buyer Activity Falls
The cooling home sales were largely due to the city’s diminished supply of available housing, which had limited negotiating power between owners and buyers, the report said. In turn, homebuyers were unable to bargain for lower prices and were waiting for the market to cool down, which led to slowed growth in transaction volumes.
The firm predicted that the number of new sales contracts signed in the third quarter would come to a total of 17,825 cases, representing a 19 percent slump from the preceding quarter.
“The downward trend is expected to continue with (sales and purchase agreements) falling to 4,700 cases in September,” said Keith Chan, director and head of research at Cushman & Wakefield Hong Kong.
The agency estimates that much of the latent purchasing power that had built up during 2019’s unrest and 2020’s lockdown has now been released, and that buyers are already feeling less urgency to enter the market.
Hong Kong’s housing market had been heating up in the first nine months of 2021, with 77,369 cases of sale and purchase agreements, displaying a 27 percent jump from the same period the previous year.
Driven by a recovering economy and record-low interest rates, homebuyers began returning to the housing market in the second quarter, with home sales rebounding from 7,084 in May to 7,591 in June, property consultancy JLL reported in its Market Monitor.
At the beginning of the third quarter, however, transaction volumes remained largely flat, with a slight month-on-month drop of 0.2 percent in July.
Cushman & Wakefield predicts that in the next three months, housing supply released by property developers will bring primary sales to dominate the market.
“We forecast that about 8,900 new units will be ready for primary sale from September to December, of which many come from large-scale developments,” Lai said.
Within September alone, Hong Kong has seen developers rushing to add to their existing land supply. Earlier this month, Henderson Land Development won the tender for a residential project in To Kwa Wan at a price of HK$8.1 billion, and in the same area, developer Grand Ming acquired a housing project for HK$320 million.
With the vaccination rate continuing to increase in both the Chinese mainland and Hong Kong, the potential border opening could bring an influx of purchasing power from the mainland. This, combined with Hong Kong’s real GDP having grown by 7.8 percent in the first half of 2021, could drive housing prices to increase by up to 8 percent over the whole year, said Knight Frank.
Editing by Christopher Caillavet