According to September research by DTZ/Cushman & Wakefield, strong pent-up demand for homes sent July and August sales soaring to their highest levels since June 2015, to about 13,000. As a result – or perhaps despite it – prices climbed nearly 16% from their low ebb in April.

That marks a rebound that started late in the second quarter and followed a fairly weak first half: JLL stated sales dipped a whopping 38.3% over the first half in 2015. But one thing is certain: the majority of the activity remains in the primary market, at 72% of transactions. Which begs the question: Is the primary market really the way to go for a buyer with $6 million to spend?

First Choice

“Since Q2, the pent-up demand has begun to unleash towards the various primary projects, particularly those with attractive qualities, as confidence in the prospects of residential properties resumed,” begins Alva To, senior managing director of Hong Kong and head of consulting for Greater China at DTZ/Cushman & Wakefield.

He notes the ongoing low interest rate environment (which appears likely to continue in light of little rumblings from the Fed since December) has spurred the movement of capital into property once again.

Perhaps most crucially, “Developers are catering to this strong appetite of homebuyers with substantial and reasonably priced listings, while banks are slashing on mortgage rates to attract borrowers”, he continues.

Land sales are also recovering, and JLL has forecast a 194% surge in new supply between now and 2019. The primary market remains the most active simply because there is stock to buy.

But there’s more to it than that. One of the upsides to purchasing in the primary market is a guarantee of shiny bells and whistles. It may seem petty, but given the wear and tear the climate exerts on everything in Hong Kong, new plumbing, electrical, appliances and freshly plastered walls – never mind marginally smarter designs and features – saves time, expense and stress.

“I opted to wait for a new building to be finished and move into that because when I eventually get my keys, the flat will be ready. I won’t have to worry about how safe the windows are and things like that,” says Lola (who requested anonymity), who recently purchased her first home. “I also got a good discount.”

If anything, with Hong Kong’s runaway prices, discounts and other incentives that many of the city’s biggest developers are offering are major selling points.

“The secondary market is very quiet and transaction volumes are pretty low,” says Knight Frank’s senior director and head of valuation and consultancy, Thomas Lam, noting that activity is also concentrated in the New Territories.

“All the new supply is up there. If you’re a new homebuyer, you’re looking out there,” he says.

Developers were, and are, remaining aggressive, which could account for the July/August spike.

“If you look at new launches many have attractive packages and attractive pricing. They were averaging around $10,000 per square foot. And some developers were offering financing at 90% or 95%.” A $300,000 deposit is a far cry from a $2.4 million one.

Among those: Swire Properties’ Alassio; Sun Hung Kai Properties’ Ultima 2; and Sino Land’s Commune Modern were incentivising sales with discounts as high as 13% and LTV financing from 80% to 95%, while other projects flirted with 120%.

That said, Commune Modern and Alassio were selling up to 20% lower than nearby projects as of June, and Ultima 2 was 20% below its Phase 1 launch. Nonetheless, developers anxious to move products are a bonus to house hunters.

Secondary Benefits

All things being equal, there is still something to be said for purchasing in the second-hand market. The biggest advantage to the secondary market is, arguably, size. With the government encouraging the construction of small flats (under 600 gross square feet) and developers complying, anyone looking for a bit of elbowroom is likely to investigate the second-hand sector.

And, like space, location can be a major factor for purchasing, particularly for singles and young couples that still take advantage of Hong Kong’s social amenities.

With the majority of new supply coming in the New Territories, anyone who would like to walk home, to work and to the cinema is compelled to look at the second-hand market.

Older towers and walk-ups can also come with outdoor space so rare in the SAR, which can ultimately increase value down the road. Secondary homes are also, in general, cheaper – always a factor for prospective buyers not in the luxury market.

But the secondary market faces its own peculiar share of challenges, chiefly in initial cost and potential financing difficulties.

Secondary property prices crept up a modest 1.6% (according to the Rating and Valuation Department) by early July, and with nearly 100,000 new units coming in the next four years, secondary sellers are facing competition for buyers.

Knight Frank maintains prices will fall up to 5% this year despite the late-summer rebound, but it still makes for a complicated market.

Financing can be difficult at best, non-existent at worst for secondary properties – banks are not keen on mortgaging old properties – meaning buyers of $6 million flats need nearly all of it in cash to ensure a sale.

“My final shortlist for flats came down to a new building and an older one [in Wan Chai District] with much more space. But I was afraid I would never get financing for the old building; it was built in 1970-something. It was under $6 million, but I would have needed an extra 10% of the price to do some pretty major renovations, maybe more,” Lola says.

That said: “If I’d been able to guarantee not losing my deposit on the old flat I would have snapped it up in a shot.”