The ongoing pandemic has impacted every inch of the world differently, but with 2021 presenting many possibilities, what should we expect to see?
Hong Kong has always been and always will be, in a league of its own. The swelling economy has not only caused the city to become the most expensive place to live, but also the most expensive place to purchase property of any kind.
Below we examine the Hong Kong property trends in 2021, with a different focus each month on the headlines that are set to shape the market going forward.
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Second-Hand Home Prices Soar to a 23-Month High
After seeing price rises of 260% over the past 12 years, it seems as though not even a global pandemic can stop Hong Kong’s property market from growing. While property prices made history in May, June saw another record as prices hit a 23-month high.
As we passed the halfway point of 2021, many property professionals assumed that the highs we saw last month paved the way for significant falls in prices throughout June. Initially, cities across the Greater Bay Area were thought to be most vulnerable to these anticipated falls, but as June draws to a close, second-hand home prices have made history yet again.
In the first five months of the year, the value of second-hand properties rose by 5%, fuelled by a surprising 7.9% increase in the Hong Kong economy in the first quarter of 2021. With this momentum continuing, both the primary and second-hand markets reached considerable highs, although second-hand properties led the way.
In the first half of June alone, property transactions in this market were expected to reach 50,521, according to Riacorp Properties, which would have been up 50% on last year. With property values far surpassing these expectations, second-hand homes that are smaller than 431 square feet saw an 1.1% year-on-year increase. This undeniable growth has been attributed to many things, primarily the increasing positivity throughout the economy.
Interest Rates Remain Low Indefinitely
Interest rates across Hong Kong, and across the world for that matter, have reached historical lows since the onset of Coronavirus. While the economy is slowly but surely recovering, Hong Kong banks are still under pressure, with these low interest rates expected to continue indefinitely.
According to KPMG China, the profitability of Hong Kong’s banking sector remains considerably low, fuelled by a lack of consensus on whether inflationary pressures will encourage the US Federal Reserve and other central banks to raise the rates. As Coronavirus persists in one way, shape or form, Hong Kong banks are working on the assumption that these low interest rates will continue for the coming years.
During the height of the pandemic, operating profit of all licensed banks across Hong Kong fell by almost 20% to HK$232 billion, with the net interest margin decreasing by 41 basis points. However, similar to what we are seeing across the economy, there is an increasing sense of optimism, especially after the notable economic growth during Q1.
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Commercial Property Records Positive Net Absorption
Although Hong Kong’s residential market remained relatively unharmed by the turmoil of 2020, office space across the city suffered, to say the least. With shifts towards flexible working, many companies made the change to permanent home working and vacancy rates soared as a consequence.
The grade A office vacancy rate across Hong Kong is now sitting at 9.4%, with central reaching 7.2%. Although the vacancy rate continues to sit between 6.5% and 9.4% for cities within the area, the net absorption for office space is now positive for the first time since July 2019.
Sitting at 116,300 sq ft in May, the return to the office is thought to be fuelled by the roll out of the Coronavirus vaccination programme and a degree of optimism across the economy. The growing vacancy rate we have seen since the onset of Coronavirus has also encouraged more flexibility within the market, with commercial landlords now willing to accept lower rents.
Despite the increasing demand the commercial property market has seen over the past month, rental growth remains negative. In the overall market, rents continued to decline by 1.4% month-on-month. However, as the Coronavirus programme continues and the economy remains on the road to recovery, the office market should continue improving.
Property Auctions Rise in Popularity
The residential market continues to boom, which has not only been translated across second-hand properties, but also foreclosed properties. Property auctions have risen in popularity over the past month, with an estimated 10% more potential buyers, according to Henry Choi, director at Century 21 Surveyors.
Covid-19 catalysed record-breaking unemployment levels, but these have begun stabilising and are thought to be at the root of this shift. Although this has also seen less foreclosed properties come to auction, around 90 properties were taken over this month, all of which sold more quickly and more frequently.
The buoyancy of residential property has also been translated into these auction prices, with around a 10% increase in value for owners selling their homes, and up to 7% for banks auctioning foreclosed properties.
While these properties have continued to see incremental rises in prices, they still remain between 5% and 10% lower than standard market values. However, regardless of this increased affordability, Hong Kong always has been, and always will be, an expensive market which for investors, has made Buy-to-Let opportunities less accessible.