Cushman & Wakefield Hong Kong: Residential Housing Indices Rise Investment Market Regaining Momentum

HONG KONG, Aug. 9, 2012 /PRNewswire-Asia/ -- Cushman & Wakefield, the world's largest privately owned real estate services firm, today released H1 of 2012 trends for the Hong Kong residential and investment market and the outlook for the remainder of 2012.

Home prices to fall slightly with rental yields climbing to 3%

According to the data of Hong Kong's Rating and Valuation Department and Cushman & Wakefield, local private residential housing price index grew from around 180 early this year to 200 in June, an increase of roughly 10%. The private residential rental index increased by 3.5% during the first half of 2012. Overall residential housing prices increased by an average of 6.6% year-on-year, with prices of small and medium-sized flats and large flats having increased by 6.7% and 2.0%, respectively, during H1 2012. Overall private housing rents grew by 4.0% as compared to last year, whereas rents of small and medium-sized flats jumped by 4.3% and large by 0.5%.

Vincent Cheung, National Director of Valuation and Advisory Service of Cushman & Wakefield, said, "Residential property prices will increase by 6.9%, and rents by 5.6% in 2012 in general, among which rents of small and medium-sized flats will increase by 6% but rents of large flats will go up by just 1% this year. Small and medium-sized flat prices will see an increase of 7%, while prices of large flats will rise by 2% year-on-year. Currently the growth of rents is slower than that of home prices, therefore adding pressure to rental yields. However, we anticipate the price growth will moderate in the second half of 2012 while rents achieve sustained growth, causing yields to rise to 3%. We anticipate that 11,890 new flats will be available in 2012, along with 4,930 and 12,500 new flats being offered in 2013 and 2014, respectively, and then a peak of 25,100 in 2015. If interest rates are revised upwards at this time, combined with a substantial increase in home supply, property prices will face pressure, and developers will likely adjust the supply accordingly."

Commenting on the new administration's new housing initiatives that each year 5,000 white-form applicants of Home Ownership Scheme (HOS) flats are allowed to purchase their homes in the secondary market, Cheung said the idea is good, and can help households of subsidised housing enter the private market. However, it should be noted that the loan-to-value ratio for HOS flats are higher, reaching 90% and 95% for white and green form applicants, respectively. If the housing market experiences a downturn, homeowners will more likely face the risk of negative equity. Cheung recommended that the government introduce restrictions of resale, for example, allowing the white form applicants to sell their flats to only white and green form applicants after 2 years from the date of purchase and to the market after 5 years from the date of purchase after paying a premium. As HOS flats are a form of subsidised housing, Cheung also suggested selling the flats to Hong Kong people only, even if premiums have been paid.

Regarding the 3,000 hostel flats for youngsters and young couples from ages 18 to 35, Cheung believed that the sites for hostels are at prime locations, in close proximity to business districts and urban areas. But the government has to consider the working places of single persons and couples with a maximum monthly income ranging from HK$17,000 to HK$34,000. Cheung pointed out the provision of youth hostels is only a short-term initiative. Tackling the challenges arising from aging population, the government should speed up the construction of public rental housing estates to get to the root of the problem. In addition, Cheung advised the administration to raise the plot ratios in the New Territories suburban areas. With expansion of transport networks, development of new areas can be expedited to boost housing supply.

Large-sum transactions emerged in Q2 thanks to greater liquidity

Kent Fong, Senior Director, Co-Head of Investment of Cushman & Wakefield Hong Kong, said,"Hong Kong saw177 large-sum transactions (above HK$100 million) of properties for investment in H1 2012, a considerable growth of 92.4% over the H2 in 2011. The total transaction amount also grew rapidly by 42.1%, from HK$44.1 billion in H2 2011 to HK$58.4 billion in H1 2012. This strong growth is attributed to greater liquidity as banks were once again active in lending activities after the Lunar New Year, encouraging more transactions. Apart from high liquidity and capital from various sources, the environment of sustained low interest rate also enticed investors to purchase properties against inflation. In addition to local and mainland Chinese capital, European and American investment was also involved in large-sum transactions for investment properties via real estate funds. However, in H1 2012, the focus was on second-tier locations, including Kwai Chung, Tsuen Wan, Kwun Tong, etc., and secondary investment properties. An overseas fund acquired 8 levels covering a floor area of 200,000 sq ft at Kowloon Commerce Centre (KCC) Tower 2 in Kwai Chung for HK$1.3 billion, while another fund paid HK$1.5 billion for Laguna Plaza in Kwun Tong.

Investment portfolios expanded from Grade A office buildings in Central and major shopping streets to Grade B office buildings in Wan Chai (including Bank of East Asia Harbour View Centre, AXA Centre and Overseas Trust Bank Building on Gloucester Road) and minor shopping streets (including Lyndhurst Terrace and Wellington Street). With relatively lower unit prices and higher returns of 3% to 4% as compared with Grade A offices and prime shops, investors and capital funds considered non-core districts attractive and entered these markets. Despite the sustained weak external economy, the impact on Asia has not been drastic. Hong Kong will likely see sustained large-sum transactions in H2 2012 under the low-yield environment, as the demand for properties in Hong Kong remains high and capital continues to pour into the city.

About Cushman & Wakefield

Cushman & Wakefield is the world's largest privately-held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the world's major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and assignments. Founded in 1917, it has 235 offices in 60 countries and more than 14,000 employees. It offers a complete range of services for all property types, fully-integrated on a global basis, including leasing, sales and acquisitions, debt and equity financing, investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has more than US$5.5 billion in assets under management through its wholly-owned subsidiary Cushman & Wakefield Investors.  A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge. In China, Cushman & Wakefield maintains six market-leading offices in Beijing, Shanghai, Chengdu, Guangzhou, Shenzhen and Hong Kong. More information is available at www.cushmanwakefield.com.

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