Everything about Landscope Christie's International Real Estate and the Hong Kong luxury property market

Continued Buoyancy?

Boosted by a bustling stock market and increased liquidity in mortgage market, luxury property sales continued its buoyancy in April. Although economic statistics are still revealing the aftermath of last year’s financial tsunami, there are signs that the rates of decline in some sectors have slowed.

Encouraging news from China is drawing investment capital from around the world, and Hong Kong being advantageously positioned is receiving a good share of the capital flow. Stock market rally has pushed Hang Send Index from below 12,000 in mid March to 17,000 this week, a phenomenal gain of over 40% in less than two months. All of a sudden, the pendulum of sentiment swung from bear to bull. In a world where every other country is bemoaning depression, China is the only bright spot on Earth with positive growth. Hong Kong, albeit recorded its worst GDP quarterly decline since 1998, shrugs off the worries because of its unique relationship with China.

Despite a thinning profit margin, local banks have taken an aggressive stance in mortgage lending, which has over decades proved to be a much safer bet in Hong Kong. Abundance of capital has kept mortgage rate low, with some banks offering prime rate (currently 5% to 5.5% p.a.) less 3 percentage points, which was only available when the property market was in its heyday. Bargain hunters since the market crash have suddenly found strong financial back up in February, and they have since garnered enough war chest for a buying binge that is responsible for the resurgence of sales. In a near-perfect free market, Hong Kong’s property price is extremely sensitive to sales level. Increased sales drive price up and diminished sales depress it almost instantaneously. Consequently, the luxury property market has recorded a mild price gain of 2% to 3% in the last two months.

Will luxury property price continue to climb up? I doubt. A sustained price escalation would have to depend on fundamentals rather than sentiments. Local economy has yet to show any sign of recovery. Unemployment has not reversed its upclimbing. Capital investment in various business sectors except the stock market has not seen returning. Moreover, rental has behaved just the opposite to sale price. Rental decline has seen no sign of abating since the outburst of the tsunami, as vacancy keeps rising when most multinationals are down-sizing and repatriating executives. Those employees who still remain with a job have found housing budgets slashed substantially. As the traditional high season for luxury property leasing is around the corner, rentals may take a breather before continue the downslide. I do not see any justification for further price growth in view of the rental downtrend.

By K.S. Koh