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Property News Weekly Digest
2019/5/25
〈China Daily, May 24, 2019〉Hong Kong will keep rolling out cooling measures designed to rein in skyrocketing property prices even though they have a very limited effect, according to JPMorgan.

The American investment banking giant joined a growing chorus of bullish forecasts, predicting the city's home prices will go up by another 5 per cent this year.

"Hong Kong government has a political responsibility to impose policy measures even if they are relatively ineffective," said JPMorgan's property team, led by Cusson Leung, in a recent report.

"The main objective of property measures is not the ultimate impact on prices, but the government sending a proper signal to the market - to cool down sentiment - that it will not tolerate sustained increases in property prices."

JPMorgan suggested that "to regain its effectiveness" the government was likely to either increase the 15 per cent stamp duty or put further restrictionson non-HongKong buyers and those buying a second home.

And the Hong Kong Monetary Authority, the city's de facto central bank, could further increase the risk weight of the banks' mortgage loan books to increase the costs of home financing, it said.

In its latest effort to make housing more affordable, the government announced it would change the ratio of public and private housing to a 70:30 split from the previous 60:40 in its targeted supply.

The plan was announced on December 21 last year, shortly before a strong rebound in property prices.

Flats in some residential estates have soared by about 20 per cent this year, and most experts forecast a lasting rally.

UBS said in May that it foresees another 10-year bull run in the city's housing market.
The average price of pre-owned flats in 50 major housing estates reached a record HK$15,352 per square foot last month, after leaping 2.4 per cent, the largest monthly increase ever, according to Ricacorp Properties.

〈Asian Post, May 24, 2019〉The average price of Chinese commercial property is expected to rise 7.6 percent this year to 9,206 yuan (HK$10,444) per square meter, a new report from the Chinese Academy of Social Sciences China showed.

The report said the average home price increased 12.2 percent in 2018, much higher than expected.

Meanwhile, the China Real Estate Association released its 2019 research report of the best listed developers, with Evergrande (3333), Vanke (2202), and Country Garden (2007) taking the top three spots, unchanged from last year.

The research was based on a total of 218 listed companies, among which 83 are listed in Hong Kong. Poly Real Estate, China Overseas Land & Investment (0688), Sunac China (1918), Longfor (0960), Seazen, China Resources Land (1109) and Guangzhou R&F Properties (2777) ranked fourth to 10th.

The average total assets of listed real estate firms rose 28.4 percent year-on-year to 112.2 billion yuan, while average revenue and average net profit respectively grew 33.92 percent and 13.82 percent in 2018. In terms of leverage level, the average leverage ratio of the listed firms covered gained 3.04 percentage points to 68.09 percent, while average net debt ratio grew 2.65 percentage points to 92.52 percent.

〈The Standard, May 24, 2019〉The premium property market in the New Territories is experiencing an "Indian summer' due to the recent improvement in the square-foot prices of luxury homes in the area.

For example, the Valais project in Sheung Shui - dubbed a "ghost town" by local media - saw four transactions in the secondary market last month - the highest within the past year.

Midland Realty Senior Area Sales Manager Lok Wu said the demand for Valais units rose as the per square foot price difference between luxury homes and ordinary residential flats narrowed.

Prices of Valais units currently range from HK$15,000 to HK$16,000 per sq ft, while flats at Grand Yoho in Yuen Long cost more than HK$20,000 per sq ft in the primary market. Meanwhile, second-hand homes at Yoho Midtown in Yuen Long are running at about HK$17,000 per sq ft.

About 80 percent of Valais purchasers bought for investment purposes. Many customers from other districts in Hong Kong, including Sha Tin and Tai Po, checked out Valais units last year amid a surge in home prices as there were many loss-making resales of Valais flats, Wu said.

He added that a 1,500-sq-ft luxury apartment at Valais was sold for only 3 to 5 percent higher than the original purchase price, and loss-making resales have fallen as owners are disposing their units one after the other.

Wu also said more clients bought luxury homes that have parking spots to reduce parking costs, as rents for parking spaces were rising.

"Many CEO-level buyers have more than one car, and the monthly rent for each parking space costs about HK$3,000, so it saves more to live in luxury houses with parking spaces," Wu said.

〈China Daily, May 23, 2019〉Cushman & Wakefield expects rent of grade A offices in Central will fall 2 to 3 percent this year due to the trade war. The global real estate services firm said the commercial real estate transaction volume only recorded HK$1.9 billion in the first quarter, compared with HK$71.9 billion last year.

Under the negative effects brought by the trade war, Chinese investments on commercial offices had been cooling down in the past half year after a two-to-three-year expansion, said John Siu Leung-fai, managing director of Cushman & Wakefield Hong Kong, he expects there will be a lower demand for grade A offices in Central this year.

He added that many foreign institutions have been moving their offices away from the core area to eastern Hong Kong Island or eastern Kowloon in order to reduce rent costs, while development of technology and public transportation have made it possible to work from home.

Siu predicted that Kai Tak will have better prospects with more multinational companies moving in, with new launches in 2022. He predicts Kai Tak will catch up with Central by 2023.

〈Asian Post, May 22, 2019〉Squeezed out of owning an old home in the city by tightened mortgage rules, many Hongkongers are increasingly buying smaller but more expensive new flats.

Unable to apply for an adequate mortgage from banks, they are turning to developers, who provide loans amounting to as much as 90 per cent of a property's value, no matter what the cost.

Penny Li, 35, a finance professional, bought a new flat that was smaller and more expensive than she wanted because she could not get a mortgage for an old home in a better location.

With an initial deposit of as little as HK$1 million, she secured a 530 sq ft home that costs HK$9.4 million. "If it were not for the extra loan offered by the developer, I could not have bought this home," Li said.

Her original plan was to buy an old home close to work for a bit more than HK$9 million. But she needed 40 per cent of its value for a down payment under current mortgage rules.

"We always say Hong Kong's housing issue is due to lack of supply. But what we did is suppress supply in the secondary market. We are self-contradictory," said Joseph Tsang, JLL Hong Kong's managing director and head of capital markets.

Since February 2008, when the Hong Kong Monetary Authority (HKMA) first lowered the mortgage cap for all homes worth more than HK$20 million to 60 per cent from 70 per cent, it has issued eight rounds of mortgage tightening measures, including lowering loan-to-value ratios and the caps on the debt servicing ratio while adding new stress tests.

Fuelled by ample liquidity and a low-interest-rate environment, Hong Kong property prices have climbed about 2.5 times since 2008, making flats unaffordable.