In the primary market, transactions popped up significantly as soon as the government removed the property curbs. A total of 4,141 new residential units were sold in March, compared with 262 in February, according to data provider Dataelements, which tracks new residential properties in Hong Kong. The number dropped by more than 50 per cent to 1,880 units in April and slid a further 32 per cent to 1,273 in May.
“We interpret this surge as a release of pent-up demand and anticipate moderating transactions in the coming months,” JLL’s report said. It added that the number of provisional primary units – a leading indicator of future sales agreements – reached about 4,200 in March but declined to about 1,700 in April, suggesting a market deceleration.
March’s transaction number was a historical high last seen in the 1990s, said Buggle Lau Ka-fai, chief analyst for real estate agency Midland Realty. As a result, the sum of primary transactions in the first five months of 2024 has already reached the full-year level in 2022 and 2023.
Primary transactions will hit around 18,000 units this year, meaning monthly transactions for the next seven months will remain at around 1,400, a “return back to the average level between 2017 to 2021”, Lau said.
“I wouldn’t say the transactions are losing momentum, but returning from an extremely high level to a normal level,” he said. “You can’t expect monthly transactions to stay at 4,000 units every month.”
Primary transactions during the spike benefited from developers’ strategy of offering big discounts to clear inventory, which has swollen to around 20,000 units over the past two years.
Several projects launched at discounts exceeding 20 per cent after the removal of the cooling measures, compared with comparable projects nearby that launched when the measures were still in place, JLL said. These included Great Eagles’ Onmantin in Ho Man Tin and Sun Hung Kai Properties’ Yoho Hub in Yuen Long.
The pricing down of new units will continue, and the market will see some buyers switching from the secondary market to the primary market, Lau said.
Secondary-market transactions are also slowing, from 5,350 in March to 4,500 in April, and analysts expect the number to drop to 3,000 in May.
“The slowdown in transaction volume is inevitable, and is largely caused by prospects of delayed rate cuts” said Will Chu, senior research analyst for Hong Kong and China property at CGS International Securities.
The US Federal Reserve is unlikely to initiate any policy easing with inflation in the world’s largest economy remaining above its 2 per cent target. The Hong Kong Monetary Authority adjusts its policy based on the Fed’s decisions in order to keep the local currency’s peg to the US dollar.
Tightening of credit by local banks is another factor that will lead to lower activity ahead, Chu said. Media outlets have reported that local banks are ending cash rebates for mortgage loans and that some banks are applying stricter requirements in vetting mortgage applications by non-Hong Kong residents, he said.
As low prices for new flats increase pressure on prices of lived-in homes, more loss-making deals have appeared. Secondary-market prices are likely to trend down in the next few months due to the prevailing high mortgage rates and the price war in the primary market, Chu said.
For example, the owner of a 584 sq ft, three-bedroom unit in Kowloon Tong’s Parc Oasis further reduced the asking price by HK$1.2 million to HK$9 million, selling the property at around a 20 per cent loss after holding it for four years.
However, JLL remains optimistic about the market’s longer-term prospects. Factors pointing to a more sustainable recovery include anticipated rate cuts, improving rental yields, economic growth in mainland China and the potential relaxation of cross-border foreign exchange controls for home purchases, the company said.