According to global property consultant JLL, Hong Kong's residential market turned more sluggish in the second half of 2023 as buyers are cautious amid rising interest rates and the challenging external environment. Mass residential saw a decline of 3.1% in capital values as of November 2023, bringing them back to the price level of March 2017.
Prices of luxury residential fell 4.1% during the same period. However, luxury residential rents rebounded by 4.9%, as there was sustained demand from potential buyers switching to the leasing market and the inflow of talents and non-local families.
Total residential sales remained low, with the average monthly transaction volume in the first 10 months of the year being 25% below the previous four-year average.
Home prices are unlikely to experience a significant rebound due to the government plans to build 39,100 subsidized sale flats in the next five years, which will dampen demand in the private housing market. Buying demand from mainland Chinese will be limited and primarily focused on the luxury market.
Without support for the downward momentum, negative equities are expected to increase to about 30,000 cases if home prices drop 10% further next year.
As of November, only 14.2% of the current fiscal year land premium revenue target was achieved and six government land sites were withdrawn from tender. With only one quarter left in the fiscal year, it is unlikely that the land sale revenue will reach the estimated target of HKD 85 billion.
High interest rates and weak home sales are causing developers to be conservative in tender, which could lead to more withdrawals in the coming months. Such frequent withdrawal of government land tender will significantly reduce land revenue, funding for future infrastructure developments, and market sentiments.
For lease modification and land exchanges, developers are increasingly opting for the traditional land premium application scheme instead of Standard Rates. This shift is driven by the sharp fall in land prices. For example, a developer paid at least 39% less by utilising the traditional scheme for the redevelopment of a cold storage in Yau Tong into a residential project, compared to the Standard Rate.
The growing disparity between market prices and Standard Rates will diminish the effectiveness of Standard Rates in expediting the land premium procedure, further slowing down urban renewal and new area development.
