For Hong Kong property developers, 2018 was a good year. Particularly in the first ten months, a slew of record-breaking sales—in both the primary and secondary markets—have helped the overall housing market sales revenue surpass expectations and reach historic heights.  On the other hand, 2018 was also a year of change for Hong Kong: interest rates were raised for the first time in 12 years and international trade conflicts arose, causing the property market to take a deep plunge in the fourth quarter. Stagnation in primary and secondary markets has propelled some developers to put out promotional offers to boost sales. Despite the downturn, Ricky Wong, managing director at Wheelock Properties, thinks there’s no need to be overly pessimistic about the housing market in 2019, and that home prices are likely to rise in the coming year.

“I would use the word ‘prosperous’ to describe the 2018 housing market,” begins Wong. “Judging solely by the first three quarters, Hong Kong’s housing market was filled with good news and advantages. The city’s economic growth rate maintained at around 3%, and the unemployment rate was kept at below 3%, which means that most Hongkongers were employed and had considerable buying power. In addition, strong stock market performance and the overall optimistic market atmosphere also contributed to the excellent numbers in the housing market in the first three quarters of 2018. Even the market consensus that Hong Kong would follow the US in raising interest rates didn’t put a damper on primary or secondary home sales during this period.”

According to the Rating and Valuation Department’s preliminary findings, the home price index in October 2018 was 380.3, marking a 3.67% decrease from its high point in August. While home prices in the first ten months of 2018 did bring about a 7.83% year-on-year growth, the rate is significantly lower compared to the 11.57% year-on-year growth achieved by the first seven months of 2018. Most pundits can agree that global economic instability and unpredictability is to blame for the housing market downturn that started in the fourth quarter of 2018.

Impacts of rate hikes are showing

As someone who works on the frontline of the housing market, Wong concurs that the uncertain and somewhat bleak economic future is the chief culprit of the market decline. “Judging from the market conditions in the fourth quarter of 2018, people have become more cautious with their home buying decisions,” Wong observes. “I believe the biggest factor here is the US-China trade war. In fact, the stock market reacted quickly to the negative impact of trade tensions ahead of the housing market cool down. Interest rate hikes, which many had thought to be a key contributor to the downturn, however, didn’t end up having a huge effect on the market, perhaps because the rate increase has been rather small so far.

“In the end, the market shift in the fourth quarter doesn’t change the fact that when compared on a yearly basis, Hong Kong’s home prices in 2018 have indeed been higher than 2017,” he adds.

Wong agrees that the increased discount for the Home Ownership Scheme did affect the housing market in the fourth quarter to some extent, and believes that the effect impacted more on small-sized units. To offset the negative impact caused by such a combination of factors, Hong Kong developers introduced a variety of promotions to attract buyers in the fourth quarter, which, thanks to the considerable housing demand, yielded good results. Wheelock Properties, for example, sold 10% of its 300 leftover units from a previous development in a short period of time by offering new deals and discounts, and immediately made approximately HK$400 million in sales.

As for the 2019 housing market, Wong predicts that overall, it won’t be a rollercoaster like 2018, and it’s likely to be stable, with some growth to be expected. “I want to be clear—the key reason behind my prediction is my belief that the US and China will be able to reach a trade agreement before the 90-day truce runs out, seeing as the two countries have a great past record of working out their differences over various issues,” he explains. “I’ve also taken into account other factors, such as the fact that Hong Kong’s housing demand hasn’t dwindled, the city’s economy and employment rate are unlikely to take a turn for the worse in the near future, and that interest rates, despite the hikes, are still low.

“All things considered, I think home prices are going to be stable in 2019 and will probably rise; it’s just that the growth won’t be as big as in 2018,” Wong concludes.

Phase 7 of LOHAS Park takes the lead

Despite the growth rate for home prices slowing down in 2018 Q4, Wheelock Properties had already sold off most of its new units in the first half of the year, so they were relatively unaffected by the sudden market shift. “The group sold a total of over 2,000 residential units in 2018, translating to around HK$25 billion in sales,” Wong reports. “With the three retail centres in Tseung Kwan O that we sold for over HK$3 billion, the group reaped close to HK$30 billion from property sales in 2018.” This is a new sales record for Wheelock.

Having made history in the past year, is Wheelock Properties feeling the pressure stepping into 2019? Wong shakes his head, stressing that the group will stick to their current sales strategies and roll out new projects as planned. “In 2019, Wheelock will launch three new major developments, which offer a combined total of some 2,100 units targeted at medium to high-end and luxury markets. Phase 7 of LOHAS Park will be the first of the trio to open. It has around 1,100 units, 70 to 80% of which are two- and three-bedroom flats. It’s scheduled to enter the market in the first half of this year.”

Immediately following LOHAS Park Phase 7 is a luxury housing development located on 77-79 Peak Road. Slated for a mid-2019 opening, this project consists of eight standalone houses with areas between 6,000 to 8,000 square feet. The third development, located on Sin Fat Road in Kwun Tong, will offer approximately 1,000 units ranging from one- to four-bedroom suites.

As for land bidding, Wong says that with mainland developers showing waning enthusiasm for Hong Kong land, his company now has a better chance at winning sites at land sales. In the meantime, he emphasises that the group’s land-bidding strategies, which focus on evaluating the potential and development costs of a site and being fully prepared for each project, have remained the same. In late 2018, a ‘property dream team’ featuring some of Hong Kong’s biggest developers including Wheelock and New World won a government tender for a Kai Tak site. On the victory, Wong says Wheelock doesn’t have a fixed way of bidding on land plots and if more sites suitable for co-development come up in the future, the group will definitely consider forming consortiums with other companies in the bidding process.

Wong also expresses concerns over Hong Kong’s soaring housing prices, as they increase the risks involved in land bidding. “People may think that developers love to see rising home prices,” he notes. “When a developer has something to sell, high prices can definitely be good news, but it’s not like we have new projects ready to launch every time home prices go up. Let’s also not forget that besides selling finished properties, developers also have to buy land plots to build new ones, and as home rates skyrocket, land prices are destined to rise. This would mean an increased risk of loss in land investment. Therefore, developers normally don’t wish for unchecked growth in home prices.”

Home inspection classes for first-time home buyers

In light of his views on the 2019 local housing market, Wong brings up a thoughtful service that Wheelock has recently launched for first-time home buyers. “At Wheelock, we want buyers to be as happy and assured with their choice as possible when they receive the keys to their new home. So the group is offering special classes to first-time home buyers, showing them the ropes of home inspection,” he explains. “Our colleagues in the sales department have hosted eight classes just for the Monterey development in Tseung Kwan O alone, where home inspection specialists were invited to share their experience and useful tips. We have also designed a mobile app for buyers that facilitates their home inspection process and communication with our colleagues. We hope that by utilising modern technology, we can keep up with the times and ultimately elevate the experience of home inspection and home buying for our customers.”

Wheelock Properties is a wholly-owned subsidiary of the publicly listed Wheelock and Company Limited. A major property developer in Hong Kong, its core businesses include real estate development, sales and marketing as well as asset management for a number of properties owned by Wheelock and Company Limited and The Wharf (Holdings) Limited. The Hong Kong-based Wheelock and Company Limited, was founded in 1857 and is the parent company of The Wharf (Holdings) Limited. With a focus on property and infrastructure development in Hong Kong and mainland China, it currently has a market value of over HK$90 billion.