Colliers’ Q2 2018 review suggests that Hong Kong's property prices and rents will stay firm despite rising interest rates and fragile global economic outlook

Forecast at a glance:

• Supply: Colliers expect supply to increase further in 2018 to around 20,000 units, 12% higher than in 2017. The annual completion is likely to stay between 15,000 and 18,000 units for the next five years. 
• Demand: Strong end-user demand has continued to fill new developments, while the luxury market has benefited from the strong financial status of buyers. 
• Rent: Colliers expect luxury residential rents to increase by 4% in 2018, followed by a slower CAGR of 1.7% from 2019 t0o 2022 due to the US-China trade uncertainty. 
• Price: Colliers expects residential prices to increase by 15% in 2018, which implies a further substantial drop in residential yields. Residential prices should increase by a further 5-10% per annum in the next five years. 

Transaction volume increased

Strong investment sentiment and low-interest rates have resulted in a 25.7% QOQ increase in the total transaction volume for Hong Kong residential properties in Q2 from 15,015 units to 18,881 units, the highest since Q4 2014. 

This increase was driven by a robust secondary market, where transaction volumes increased 13.5% QOQ to 13,993 units, also the highest since Q4 2014. 

The primary market remained active with 4,948 units transacted, up 81% QOQ because of more new units being launched. 

Colliers explain that the government has introduced a new set of initiatives to ease the housing shortage, including a new vacancy tax for newly built flats that remain unsold for more than six months after completion. 

New initiatives should also make subsidised housing more affordable by offering larger discounts off market prices. 

New record price for super luxury

According to the Rating and Valuation Department, Colliers' report reveals overall prices and mass residential prices have increased by 5.2% and 5.3% from March 2018, while our data shows luxury residential prices up 3.2% QOQ. 

Transaction prices in the luxury market continued to break records also:

• Number 7 and 8 at Repulse Bay Road were sold for HKD1 billion (USD129 million).
• House 8 at Twelve Peaks was sold for KHKD730 million (USD93.8 million) or HKD152,592 (USD19,613) per sqft. 

The unit price was the all-time highest for houses in Asia. 

Rental growth accelerated

Luxury residential rents have increased by 1.3% QOQ due to firm leasing demand. The Peak had the strongest performance with 2.9% QOQ growth. 

Colliers expect luxury residential rents to increase by 3% in 2018. 

Price to stay firm amid land supply shortage despite rising interest rate

In June, the Federal Reserve raised interest rates for the second time this year and upgraded the forecast to four total increases in 2018. Colliers suggest that as three more increases in 2019 are likely, real (inflation-adjusted) interest rates in Hong Kong will turn positive for the first time since the Global Financial Crisis during 2019. 

However, given the current supply and demand dynamic, Colliers expect Hong Kong's residential prices to increase by 15% for the whole year. 

Nigel Smith, Managing Director at Colliers International Hong Kong told WILLIAMS MEDIA "Hong Kong's residential price has increased by 10.4% in 1H 2018 on the back of strong economic growth, low interest rates and robust demand. Looking forward to 2H and 2019, we believe the growth would slow down due to a rising interest rate and escalation of geopolitical tensions. However, with a stable economic prospect, we do not foresee a significant negative adjustment for Hong Kong's property price." 

Click here to view Colliers International Quarterly Hong Kong Residential Q2 2018 report. 

For more information or to discuss the report, phone or email Nigel Smith, Managing Director for Hong Kong, or Letizia Garcia Casalino Senior Director for Residential Services at Colliers International Hong Kong via the contact details listed below. 

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