New projects offer higher discount after removal of cooling measures

HONG KONG, 30 May 2024 – Despite the government's removal of cooling measures in the housing market at the end of February, there has been a slowdown in home sales recently. Several new projects launched after the removal of cooling measures are being offered at a higher discount compared to nearby comparable projects launched when the measures were still in place, according to JLL's latest Residential Market Monitor released today. Such reflects that the stimulating impact of the removal of cooling measures on the property market is diminishing. In the short term, second-hand home prices are expected to continue declining due to the prevailing high mortgage rates and the price war in the primary market.

In the primary market, several projects launched after the removal of cooling measures, including 'Onmantin' and 'Yoho Hub', were offered at discounts exceeding 20% compared to nearby comparable projects launched when cooling measures were still in place.

In property sales, following the recent relaxations, the volume of residential transactions showed significant m-o-m recovery, with April recording the highest number of Agreements for Sale and Purchase (ASP) of residential buildings since 2012. However, we interpret this surge as a release of pent-up demand and anticipate moderating ASPs in the coming months. Notably, the number of provisional primary ASPs, a leading indicator of future ASP, reached about 4,200 in March, but declined to about 1,700 in April. This decline suggests a potential deceleration in the market.

Norry Lee, Senior Director of Projects Strategy and Consultancy Department at JLL in Hong Kong, said: "Although a rising proportion of the ASPs in April were contributed by mainland Chinese buyers, their buoyed buying sentiment may not promptly reflect in the market. Their ability to invest offshore funds will take time to replenish due to stringent foreign exchange controls."

In the secondary market, although the overall home prices rebounded by 1.1% m-o-m in March 2024, prices still record a drop of 13.2% y-o-y. This rebound was less pronounced than the 2.5% m-o-m increase in March 2023 following the full reopening of borders. In some major developments, we observed further price corrections in transactions during April.

Stock investors are also sceptical about the narrative of a full recovery in the residential market, evidenced by the underperformance of developers' stock prices. From 28 February to 17 May, the collective stock prices of the five major developers rose by only 3.2%, despite an 18.2% rally of the Hang Seng Index.

Cathie Chung, Senior Director of Research at JLL in Hong Kong, said: "Secondary home prices are likely to continue to dip in the short term, influenced by the prevailing high mortgage rates and the price war in the primary market. However, in a broader view, anticipated rate cuts, improving rental yield, economic growth in mainland China, and the potential relaxation of cross-border foreign exchange control for home purchases, all point to a brighter outlook for a more sustainable recovery."