Property market outlook for the second half of 2017

 Futures marketWe have just passed the half-year mark of 2017. In the first half of this year, the overall property market and especially the first-hand market remained active, selling close to 10,000 units. The projected number of first-hand property sales annually is over 18,000 units, the highest since 2008. At the beginning of this year, I predicted the annual home price increase rate to reach 15%. Despite the string of cooling measures, we still saw robust increments in home prices in the first half of 2017, as the home price index rose from 144.28 (2016 year-end) to 159.56 (this July), achieving an increase of 10.6%. However, I believe that there will be a slight dip in the price increase rate in the second half of this year but I think another 5% increase is still very likely to happen, and will stick to my original prediction.

>> A mid-year review of Hong Kong's property market

There have been two interest hikes in the US so far this year, and there might be another one in December. However, the Federal Reserve hasn’t been consistent with their future plans, and couldn’t give a definitive answer as to whether another interest hike will take place. In any case, despite the two interest hikes, there is still an abundance of funds in Hong Kong. The interest hikes didn’t draw funds out of Hong Kong or affect the local market at all.

Apart from the interest position, supply is also a determining factor of home prices. Albeit the supply is indeed increasing, it is a slow-paced climb, and developers determine their offerings based on purchase power. As sales transactions are slowing down in the second half of the year, the market remains robust. It is very unlikely that the supply will surge and bring down property prices.

In terms of Government policies, the new administration will soon take office and most likely won't introduce more radical cooling measures. If the Government does make new home-buying policies, I hope they take a new direction and focus on adjusting existing cooling measures, restructuring the property-buying ladder, and alleviating the negative side effects of the current cooling measures.

>> Comparison of primary and secondary markets

Since Trump’s presidency, the US Government has changed their negative tone about China, and the President even called Xi Jinping a “good friend”. It seems that as long as North Korea remains a problem, the US will still need an ally in China. Unless Trump decides to declare war against North Korea, Sino-US relations will stay smooth for the rest of the year, providing a safe environment for the real estate market.

A big concern for the current market is that sales tend to gravitate towards first-hand properties. While in the second-hand market, due to mortgage rate limits and huge down payments, only properties priced under HK$4 million can get a 90% mortgage rate, and that’s with the help of mortgage insurance. However, such low-price properties are extremely rare and are even unlikely to be found in Tin Shui Wai’s Kingswood Villas. Plus, properties selling for over HK$6 million have a maximum mortgage rate limit of 60%, making the down payment HK$2.4 million. As this poses difficulty for many looking to switch homes, homebuyers are forced to focus on new developments, where the developers provide mortgages and oversee the vetting process. It is an unsettling phenomenon and an unhealthy trend, but it is likely to continue into the second half of 2017.

>> Issue 272: 20 years of market change put in a historical context