Residential market outlook clouded by uncertainties as sentiment cooled after the fastest surge in prices

• Home
  transaction volumes in Q2 hit the highest level in six and a half years, but
  the hot market sentiment cooled towards the end of the quarter due to trade
  tensions and local political issues
• Prices at
  representative mass residential estates have surpassed their last peak in
  August 2018 while those of luxury residential properties are within 2% of their
  peak
• Property
  investment market improved over Q1 with office transactions being the highlight
  of the quarter.

HONG KONG,
CHINA -�Media OutReach – 18 June 2019 - Total residential sales in Q2 2019 reached
the highest level since Q4 2012, as the strong recovery and upward momentum in
Q1 this year extended into the following quarter, said Cushman & Wakefield,
a global leader in commercial real estate services. However, towards the end of
Q2, market confidence cooled in the face of a possible escalation in trade tensions
and political uncertainties. The property investment market improved slightly
in Q2, despite capital from mainland China remaining on the side line, as
institutional funds became relatively more active and focusing on opportunities
in the office sector.

 

Total property sales in terms of the number of
Sale and Purchase Agreements (S&Ps) climbed 53% month-on-month to 10,128 in
April – the first time above the 10,000 level in 76 months’ time. Similarly,
residential sales in terms of residential S&Ps reached 7,822 and 8,208 in
April and May respectively, surpassing 8,000 for the first time since October
2012. These two months alone represented a growth in residential sales by 32%
from a year ago (April & May 2018), and up 86% from combined sales of the first
two months in Q1, serving as evidence of the hot sentiment carrying into this
quarter.

 

Mr
Alva To, Cushman & Wakefield’s Vice President, Greater China & Head of
Consulting, Greater China commented,
“The positive market sentiment was supported by solid pent-up demand and
confidence in a positive market outlook, in the face of the steady development
of the China-U.S. trade talks during February and March.
However, since an escalation in tensions arising from new tariff threats in May
sent jitters across global stock markets, plus a change in sentiment due to
local political issues, we expect home sales will be down to an estimated 4,500
S&Ps for June, bringing about 8.7% growth year-on-year in Q2 overall.”

 

Home prices have been climbing for five
consecutive months since January. According to government figures, the growth
in April alone by 3.2% month-on-month was the fastest pace of growth in more
than six years. Cushman & Wakefield estimated at least another 3% growth
for May and flat for June, leading to an accumulated growth of 12.6% within H1.
In terms of actual prices, by mid-June, some popular mass residential estates
have recorded growth in prices of over 20% year-to-date, while prices in
selected luxury properties have witnessed growth of 10% in the same period.
Prices at City One Shatin and Taikoo Shing, for example, have experienced
year-to-date growth of 26.3% and 20.2% respectively, surpassing their last
peaks in August 2018 by 1%. Prices for luxury residential represented by
Residence Bel-Air and The Habourside still lag behind but are already within 2%
of their last peaks.

 

Mr To commented, “A stable and solid
demand for homes, plus an expectation of rate cuts in the year, supported the
robust market sentiment for the large part of Q2. Nevertheless, the
introduction of negative factors, such as uncertainties arising from the uneven
progress in the China-U.S. trade talks and the recent local political issues,
will push more potential buyers to hold their decision, leading to a drop in
sales especially in the secondary market, and a relatively flat price trend in
the short term.”

 

“However, the market will be able to
withstand the impact from negative factors as long as there is no fundamental
change to the pillars of Hong Kong as an international financial hub, which
apart from political stability, include sound economic fundamentals, healthy
and open tax and financial systems, free capital flows, strong infrastructures
and a readily available talent pool,” Mr To said.

 

The performance of the property investment
market in Q2 has improved compared with Q1 but the sentiment remained subdued
in general. The number of major deals (each with a consideration of over HK$100
million) increased 27% quarter-on-quarter to 66, with a total consideration of
HK$34.4 billion that was close to 2.5 times the consideration of Q1.

 

This quarter, a drop in the share of luxury
residential transactions from 71% to 44% was met with an increase in share for
office (en-bloc and strata-title combined) transactions from 8% to 35%. In
terms of consideration, the many strata-title office transactions driven by The
Center, as well as en-bloc office sales such as 625 King’s Road and 69 Jervois
Street, drove the growth in consideration over Q1.

 

Mr
Tom Ko, Cushman & Wakefield’s Executive Director, Capital Markets in Hong
Kong, said, “Mainland capital remained
tight in Q2. Given Mainland investors’ traditional preference for buying luxury
residential properties in Hong Kong, and in the face of global uncertainties
which dampened investment sentiment, this has led to a drop in major
transactions of luxury residential. On the other hand, institutional funds
remained active in big-ticket transactions and kept looking for opportunities
in the office sector. We expect when there is further progress in the
China-U.S. trade talks, the uncertainties affecting the market will clear up
further and give a boost to the performance of the property investment market
in the second half of 2019.”

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 51,000 employees in approximately 400 offices
and 70 countries. Across Greater China, there are 21 offices servicing the
local market. The company won four of the top awards in the Euromoney Survey
2017 & 2018 in the categories of Overall, Agency Letting/Sales, Valuation
and Research in China. In 2018, the firm had revenue of $8.2 billion across
core services of property, facilities and project management, leasing, capital
markets, advisory and other services. To learn more, visitwww.cushmanwakefield.com.hk or follow us on LinkedIn (https://www.linkedin.com/company/cushman-&-wakefield-greater-china)