11 January 2018 - The positive outlook of the Hong Kong property market from the second half of 2016 carried over into 2017, throughout which it experienced burgeoning growth. Hong Kong home prices rose for 20 months straight, despite government interventions to cool the housing market. First-hand residential property sales were remarkably strong in 2017, leading to an accelerating upward trend in the primary property market. Meanwhile, investments from wealthy investors on the mainland caused annual land sales revenue to surge from HK$84.7 billion in 2016 to HK$128.3 billion, with Chinese developers paying some of the highest prices to date. To address the desperate demand for affordable housing among first-time home buyers, developers built tiny flats with smaller price tags.
Record-breaking First-Hand Residential Property Sales Value
According to the Land Registry, as at November 2017, the number of first-hand property sales reached 17,352, higher than the primary sales volume in 2016 by 3.33 per cent. For the first time in history, the primary market transaction value exceeded HK$200 billion, amounting to HK$219.73 billion in the first 11 months—a twofold increase from 1997. First-hand residential projects such as Cullinan West, Ocean Pride I and II, and Harbour Glory, contributed billions to the record-setting primary sales value.
Second-hand property sales in 2017 were relatively impeded by cooling measures. The dampening of activity did not persist throughout the year and there was still a 1.17 per cent year-over-year growth from 34,811 to 38,902 by sales volume as at November 2017. Annual secondary sales have fallen short of 60,000 for the fifth year in a row, and remain very low in a historical context compared to an annual second-hand sales volume of 145,859 in 1997. Joseph Tsang, managing director and head of capital markets at JLL, attributes the sluggish second-hand housing market to the current stamp duty arrangement that restricts secondary home supply, pushing aspiring home buyers to the first-hand market.
Increasing Participation of Chinese Developers
Mainland Chinese developers aggressively built land banks in Hong Kong in 2017. For the first half of the year, Chinese developers were involved in every land sale and acquired four out of six land sites in public tenders, equaling 96 per cent of all transactions by value. As at December 2017, Chinese developers splashed a sum of HK$65.58 billion—a 60% year-on-year leap—in various land-buying scenes, winning 24 per cent of the city’s total land supply, according to the Lands Department . Mainland Chinese buyers with a consortium of five companies in Hong Kong made assertive bids to purchase the waterfront residential land in Cheung Sha Wan for a record HK$17.28 billion. That broke the HK$16.86 billion record set by a Chinese joint venture in the beginning of the year for another residential site in Ap Lei Chau.
The active participation of Chinese real estate firms and surging tender win rate will likely continue, if not increase, in 2018 as mainland developers continue to look for wealth-protection measures. As competition intensifies, land bids are expected to hit new heights, thus driving up property prices.
Nano Flats on the Rise
Nano flats, which typically feature a saleable area of less than 200 sq. ft., have been hitting the headlines throughout the year. As at October 2017, nearly one third of newly completed residential units were Class A flats (smaller than 431 sq. ft.), up 25.9 per cent from last year, and 14.9 per cent in 2012. In August, a 157-sq. ft. apartment in a new residential development in Mong Kok asked for HK$3.06 million, or HK$19,490 per square foot. Just before the end of the year, Park Reach in Yuen Long declared itself the smallest nano-flat project of the district with the tiniest apartments measuring 187 sq. ft. tagged at more than HK$15,000 per square foot.
With 2,100 nano flats expected to be built between 2017 and 2020, more prospective first-time home buyers can look forward to being able to own their property—at the expense of living space.