Virus outbreak and poor economic outlook overshadow the home market, despite short-term boost from mortgage incentives

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  • Dampened by
    social unrest and the COVID-19 outbreak, home transaction volumes fell by 21% quarter-on-quarter
    in Q1
  • Prices at
    representative estates are down by around 4-8% year-to-date
  • The property investment market was at a standstill in Q1 with the number
    and consideration of major deals falling to the lowest level in over a decade —
    by 60% and 76% respectively from the last quarter. 

HONG KONG,
CHINA – Media OutReach –
11 March 2020 – Buying sentiment had just begun to pick up
as 2020 kicked off, when the coronavirus outbreak sent another shockwave
through the market. Both home transaction volumes and prices trended down in Q1
and the outlook is clouded with negative factors. This quarter the investment
market has seen in the number of major transactions and consideration falling
to their lowest level in a decade, due to a lack of incentives for both owners
and investors to forge transactions.

As the social
unrest in 2019 showed signs of easing in recent months, market sentiment
improved following the announcement of a relaxation on the mortgage ceiling in
Q4 2019 and a breakthrough in the China-U.S. trade talks in early January 2020.
Residential transaction volume in terms of the residential Sales and Purchase
Agreements (S&Ps) started from 2,762 in January (down 13% month-on-month)
and rose to 3,572 in February (up 29% month-on-month).

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Mr Alva To, Cushman & Wakefield’s Vice President,
Greater China & Head of Consulting, Greater China
commented, “The
rebound in transaction volume in February, especially in the secondary market,
was supported by multiple favorable factors including mortgage incentives which
would give the market a short boost. However, considering the increasing impact
of the coronavirus outbreak, and growing uncertainty in the global economy, we
expect residential S&Ps in March to total 3,900, a slight improvement from
the February levels. Based on Cushman & Wakefield’s estimate for March, the
total home sales volume in Q1 will be around 10,234 in residential S&Ps,
down 21% quarter-on-quarter and also the lowest level since Q1 2016.”

Home prices have softened for two consecutive
months as indicated by the government price index. The January index figure recorded
a year-to-date drop of 0.1%, while the February index figure is expected to
drop by a larger extent under the full-fledged impact of the coronavirus
outbreak. The March index, however, should stabilize in view of the slight
increase in sales volume in the month. For individual estates, the prices as of
March have dropped by around 4-8% for both mass residential, represented
by City One Shatin and Taikoo Shing, and luxury residential, represented by
Residence Bel-Air and The Habourside.

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Mr
To
commented, “Home prices are
trending down in the face of the technical recession in Hong Kong, as the unemployment
rate is expected to rise above 5% following a worsening economic outlook at
both the local and global level. However, home prices are unlikely to fall back
to the levels similar to the last time when the unemployment rate climbed above
5%. The severe shortage in land and housing supply today against the backdrop
of falling interest rate and mortgage incentives provides strong support for
home prices — but it also drives down affordability for buyers.”

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“However, the coronavirus outbreak
situation remains fluid. Although it is widely believed the outbreak will be
contained by the second half of 2020, it is unlikely the economy will see an
immediate recovery. More shops and business closures are likely to be on the
menu with the economic outlook remaining muted, which does not bode well for
the residential market in the mid-to-long term. The situation is different from
the SARS epidemic in 2003 in which the market was bottoming out after a
six-year downturn, and policy support was in place. This time around, the
market has just begun to enter a downturn, and whether there will be policy
support remains a question.”

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The coronavirus outbreak and an extremely
cautious market sentiment have nearly brought the property investment market in
Q1 to a standstill. As of today, a total of 17 major deals (each with a
consideration of over HK$100 million) have been recorded with a total
consideration of HK$4 billion. This represented a drop of 60% in transaction
volume and a drop of 76% in consideration quarter-on-quarter.

Sales of luxury residential dominated the
investment market accounting for 70% of transactions in the quarter, followed
by industrial properties (18%) and strata-title office (12%). An increased
interest in industrial properties in Q1 contrasted strongly with the lack of
retail deals as the sector has been hardest hit under the double impact of
social unrest and virus outbreak.

Mr
Tom Ko, Cushman & Wakefield’s Executive Director, Capital Markets in Hong
Kong
, said, “The lack of incentives for
transactions, with investors on one side, remaining on the sidelines or bargain
hunting and the landlords on the other with strong holding power due to low
interest rates, explained the lull in the market. The coronavirus outbreak has
exacerbated the cautious sentiment. Meanwhile, it has also cast a light on
industrial properties, such as data centers whose demand has grown amid an
explosion in online shopping and remote working due to the outbreak. We also
expect more hotel opportunities on the market in the near term as some owners
are feeling the financial pressure. But as local investors begin to diversify
to other global markets in uncertain times, so will Mainland investors begin to
diversify to Hong Kong. We expect these trends have the potential to bring some
transactions to the market.”

About Cushman & Wakefield

Cushman & Wakefield (NYSE: CWK) is
a leading global real estate services firm that delivers exceptional value for
real estate occupiers and owners. Cushman & Wakefield is among the largest
real estate services firms with approximately 53,000 employees in 400 offices
and 60 countries. Across Greater China, there are 22 offices servicing the
local market. The company won four of the top awards in the Euromoney Survey
2017 and 2018 in the categories of Overall, Agency Letting/Sales, Valuation and
Research in China. In 2019, the firm had revenue of $8.8 billion across core
services of property, facilities and project management, leasing, capital
markets, valuation and other services. To learn more, visit www.cushmanwakefield.com.hk or follow us on
LinkedIn (https://www.linkedin.com/company/cushman-&-wakefield-greater-china)

Virus outbreak and poor economic outlook overshadow the home market, despite short-term boost from mortgage incentives - Brand Spur

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Virus outbreak and poor economic outlook overshadow the home market, despite short-term boost from mortgage incentives - Brand SpurVirus outbreak and poor economic outlook overshadow the home market, despite short-term boost from mortgage incentives - Brand Spur

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Virus outbreak and poor economic outlook overshadow the home market, despite short-term boost from mortgage incentives - Brand SpurVirus outbreak and poor economic outlook overshadow the home market, despite short-term boost from mortgage incentives - Brand Spur

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