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The end of 2016 saw both the US Federal Reserve and the Hong Kong Monetary Authority increase interest rates. Not only that, a 15% flat rate was imposed for Hong Kong government stamp duty. But still the city's residential market looks set to shrug off recent rate hikes.
Joseph Tsang, JLL Hong Kong's Managing Director, puts the market's resilience down to "the large number of cash-rich buyers in the market—including mainland Chinese buyers—strong pent-up demand from first-time buyers and still low mortgage rates."
Banks have already been offering mortgage cash rebates of up to 1.4% on total mortgage loans and fewer transactions, particularly in the secondary market, may prompt them to lower rates even more. Against a backdrop of tight housing supply, interest rates and mortgage lending rates would have to rise significantly, and the loan-to-value ratio would need to be cut further, before owners come under pressure to sell their properties at lower prices.
“Local banks have limited room to raise their lending rates amid stiff competition. A number of banks are already adjusting spreads to lower mortgage rates,” says Denis Ma, JLL’s Head of Hong Kong Research. “Rising interest rates will eventually weigh on property prices, but only later on in the cycle.”
The primary market is expected to continue to drive momentum in property transactions. "Developers are being forced to offer purchasers stamp duty rebates in order to entice them to buy their properties," Tsang adds. Some developers might also have to provide financing to purchasers. "Considering all these subsidies, costs for developers could be very high, so they may offset the impact by putting up the price of finished units," he explains.
Given developers' growing pipeline of projects and looming sales targets, JLL expects 2017 to bring more launches of completed flats. "Sales momentum should pick up, especially as developers regain confidence in their sales strategies and use incentives to override the 15% rate move," says Ingrid Cheh, Senior Manager with JLL's Hong Kong Research team. "Once buyers grow accustomed to the new measures we should see more flats being put back onto the sales market."
Areas benefiting from major infrastructure improvements are expected to be most popular with potential buyers. "There should be strong demand for residential flats in Kai Tak, given the supply and demand imbalance, and the pre-sale nature of many new launches," says Cheh. "The bulk of supply in the area should be completed in tandem with the opening of the Shatin-Central railway line."
Some buyers may also be looking to circumvent the new stamp duty rules by taking advantage of a loophole that allows the acquisition of multiple properties under a single sales and purchase agreement. Double stamp duty does not apply to first-time buyers, so families with children or other members who don't already own a home may use them to snap up more than one flat in one go. Another leg up onto the property ladder for first-time buyers comes from developers, who plan to build a greater number of smaller units in the HKD3-5 million price range.
Looking at the bigger picture, JLL anticipates the total number of residential property sales will decrease substantially over the near-term, to below the average monthly level recorded in 2016. With the appointment of a new Chief Executive in March, it is also possible that the government's measures to take the heat out of the Hong Kong's property market could be revised. Any change in policy will be closely watched by both investors and home buyers.
For more information about Residential Investment Sales and Acquisitions in Hong Kong, please contact Henry Mok.
Regional Director, Hong Kong Capital Markets
+852 2846 5756
Senior Manager, Hong Kong Research
+852 2846 5129
Senior Manager, Marketing & Communications
+852 2846 5008