Hong Kong luxury apartment prices are up 1.2% in Q3, 2014 compared with a 7.3% fall in 2013, but if the Occupy protests continue, overseas investor demand could be affected, says Savills
The pro-democracy protests in Hong Kong could affect overseas property demand in Hong Kong if they continue for some time, says a top commentator.
But at present, the residential sector is strong and primary residential sales have hit a nine-month high, says leading global agent, Savills.
Luxury apartment prices rebounded 1.2% in from July-September 2014, with most transactions coming in prime areas, compared with a 7.3% fall in 2013.
There were 12,242 residential transactions in the first nine months of 2014, the highest figure since 2009, according to the latest Sales and Investment briefing.
Simon Smith, of Savills Research, referring to investment in offices, says, “While Occupy may impact investment sentiment if it is prolonged, in particular overseas investors who may demand higher risk premiums, for now the strong fundamentals of most sectors remain relatively unscathed.
“Pro-democracy protests in various core business districts in Hong Kong have stolen the spotlight over the last fortnight as road blockades in Central, Admiralty, Causeway Bay and Mong Kok have had a larger than-expected adverse effect on traffic conditions.
“Nevertheless, despite the disruption, any direct impact on the property sector has yet to be felt, with the exception of street shops located on the blocked roads and offices located near government buildings.
“With the protests blocking high streets in Causeway Bay, Mong Kok and Tsim Sha Tsui still underway, we would expect both street shop rents and prices to feel additional downward pressure over the next three months.
“The other property sectors have proved relatively immune to the movement so far, with primary residential sales in particular receiving an overwhelming response.”
Primary residential sales and the en-bloc market were in a buoyant mood given active developers’ launches and sustained investment interests, says Savills.
Luxury residential prices rebounded slightly in the third quarter of 2014 with transactions mainly in the traditional prime areas on Hong Kong Island, although transaction volumes remained low. Luxury residential prices increased by 2.9% on The Peak and 2% at Southside, in Q3/2014.
The townhouse market was largely stable (-0.2%) in Q3/2014, although transaction volumes remain weak.
Notable transactions in this quarter include the sale of a residential site at 35 South Bay Road in Repulse Bay for HK$808million on behalf of Fook Lee Group. A 5,848 square foot house at 10 Bowen Road, Mid-Levels, was sold for HK$400million.
The secondary luxury residential market in Kowloon and the New Territories faces strong competition from the primary market. As a result, luxury price trends in Kowloon and the New Territories remained subdued in Q3/2014, with both down around 0.6%.
Activity in the Kowloon market has been focused on the sales at 1&3 Ede Road, 8 LaSalle and Paxton. For example, units A & B on 9/F of Tower 2 (plus two parking spaces) of 1 and 3 Ede Road were sold for HK$124million. The property has a total saleable area of 4,848 square feet, meaning a sale price of HK$23,824 per square foot.
The outlook for luxury home prices remains uncertain as Buyer’s Stamp Duty, Double Stamp Duty and Special Stamp Duty cool transaction volumes.
A possible rise in interest rates in the near-term has also prevented prices from rising further and Savills predicts that values in 2015 will remain largely stable.
“Throughout 2015, while we expect demand to revive in most sub-markets, the future relationship between Hong Kong and China, as well as how major investors perceive Hong Kong, could become key factors dictating movement in the office market.
“Overseas investors may demand an increased risk premium for Hong Kong if the current disruption worsens, resulting in higher cap rates and lower prices.
“To date, we note very little direct impact on values, although some increase in investment volumes has been recorded as vendors have proved more flexible in negotiations. Divided opinions on the political future can sometimes spur market activity as the bid-ask spread tends to narrow considerably. Generally, however, we expect a fairly stable office market for 2015.
“The continuing interest in en-bloc buildings reflects sustained demand for industrial premises, primarily with redevelopment potential. Escalating prices in the sector mean end users are gradually being priced out of the market, with some occupiers cashing in and others turning into landlords.
“Given a shrinking pool of affluent buyers, and with most vendors in no rush to sell, we expect volumes may be trimmed in the final quarter of the year, with prices probably flattening out.”
By Adrian Bishop, Editor, OPP Connect