As outbreak eases, home transaction volume rises to a 12-month high despite cautious market outlook

• Residential
  Sale & Purchase Agreements in May rose to 5,984, the highest level in the
  past year
• Prices at
  representative estates are down by around 0.5%-10.8% year-to-date
• With 19 major deals, the property investment market has
  not rebounded yet in Q2 as buyers and vendors remain on the sidelines amid the
  continuous uncertainties.

HONG KONG, CHINA – Media OutReach – 9 June 2020 – As the local
coronavirus outbreak gradually eased in Q2, buying sentiment was boosted by the
launch of a round of primary residential projects. Both home transaction
volumes and prices trended upward. The investment market experienced another
quiet quarter as major deals fell to the second lowest quarterly level since
the Global Financial Crisis (GFC), against a backdrop of low incentives for
both owners and investors to forge transactions, and a general wait-and-see
attitude.

Property transaction
volumes in terms of Sale and Purchase Agreements (S&Ps) continued to
rebound from Q1 levels, and most significantly in May, reaching 7,071 from
5,015 in April, or up 41%. At 5,984, residential S&Ps in May also grew by 46%
from the April record, which was the highest in a year. As new projects
continued to launch amid slower sales in the secondary market due to a shift in
sentiment, a forecast of 5,500 residential S&Ps is expected in June. That
would bring the total residential transaction volume in H1 2020 to 25,790
residential S&Ps, the lowest in a first half since 2009.

Mr Alva To, Cushman & Wakefield’s Vice President,
Greater China & Head of Consulting, Greater China commented, “Transactions
were constrained by the coronavirus outbreak during the first quarter, and when
the local outbreak began to ease in Q2, pent-up demand, mainly focused on
primary projects, pushed up the transaction volume to its highest level in the
past 12 months. However, the increase may be temporary, as the unemployment
rate continues to rise. The full impact of that on the residential market will
be clearer in the second half of 2020, and that will affect the market trend.”

After contracting for three consecutive
months, home prices were up slightly in March and again in April, according to
the government’s price index. For individual estates, mass residential prices
were relatively stable, with those in City One Shatin posting an increase of 4.0%
while those in Taikoo Shing fell slightly by 0.5% quarter-on-quarter. The
performances in both, however, were an improvement over Q1. Luxury residential
price trends varied, as Residence Bel-Air saw a drop of 1.8% while The
Habourside was down by 6.7% quarter-on-quarter.

Mr
To commented, “Home prices softened
for the most of Q2, but after pent-up demand unleashed a solid round of
transactions, home prices have seen an uptick in recent weeks. Strong liquidity
in the market recently has also boosted asset values and given support to home
prices, leading to a smaller drop in H1 than previously expected. As a result,
home prices, as represented by some popular estates, are in general down by 0.5
to 10.8% year-to-date. Given that the market outlook is still clouded by a
rising unemployment rate, a forecast of negative GDP growth, worsening
China-U.S. tensions, as well as potential economic consequences arising from
global and local uncertainties, we expect home prices to remain under pressure
in the coming quarters and likely to fall by another 5% in the second half of
the year, depending on the development of the pandemic and economic
performance.”

The cautious sentiment in Q1 2020, when
activity in the Hong Kong property investment market was at one of its lowest
levels, extended into Q2. As of today, a total of 19 major deals (each with a
consideration of over HK$100 million) have been recorded, representing a 32%
q-o-q and 71% y-o-y drop, and making Q2 the second lowest in quarterly volume
since the GFC. If the West Kowloon commercial site (sold to Ping An by Sun Hung
Kai Properties) were excluded, total consideration amounted to HK$4.3 billion,
representing a drop of 42% in consideration quarter-on-quarter.

As in Q1, luxury residential again dominated,
accounting for more than half the major deals in the quarter. More major retail
deals (4) were recorded in Q2, while the number of strata-title office and
hotel deals was around the same as in Q1. Without new incentives on
revitalization projects, industrial deals were absent this quarter. In terms of
consideration, retail deals accounted for 7% of the total consideration, mostly
due to the sale of the retail shops at Cosco Centre in Sheung Wan by New World
Development.

Mr
Tom Ko, Cushman & Wakefield’s Executive Director, Capital Markets in Hong
Kong, said, “From 2009 to 2018, there were at
least 200 major non-residential deals per year on average. That number dwindled
to around 100 in 2019, and it looks set to tumble further this year. The impact
of the coronavirus outbreak aside, a poor rental outlook for CRE, as well as a
lack of incentives for landlords holding properties with low LTV ratios to sell
amid the low interest rate environment also explained the lack of commercial
real estate transactions. A gap in price expectation between vendors and buyers
thus ensues.”

“As these factors
will continue to cloud the market outlook in the near-term, we expect both
buyers and vendors to remain on the sidelines. Upon clearer developments in the
coming quarters, investors will be able to better reassess the need for
diversification which will help spur more activity in the market.”

About Cushman & Wakefield

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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
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