Hong Kong remains the preferred destination for luxury housing over US$10 million, but investors are delaying big ticket purchases against an uncertain economic backdrop, with the number of deals plummeting by more than half in the first half.
The city recorded 60 such residential transactions in the first half, 61.3 per cent lower than the 155 seen a year earlier, according to Knight Frank. The number of deals, however, was 15.4 per cent more than Los Angeles, which came second.
“Against the backdrop of quantitative easing in different parts of the world, luxury residential assets are [a] good store of value for investors,” said Maggie Lee, senior director and head of residential agency at Knight Frank Hong Kong. “Coupled with the scarcity [of] luxury homes in Hong Kong, the buyers are still optimistic these assets would bring capital appreciation over a longer-term period.”
Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.
The outlook for Hong Kong’s luxury property sector, however, does not look bright. JLL expects prices to fall by 10 to 15 per cent this year because of decreasing capital flow from the mainland to Hong Kong’s real estate market, economic recession and rising unemployment rate.
Recent property transactions are an indicator of where prices are heading.
This week, the Cheung family, which controls the bread and biscuit maker The Garden Company, sold a building comprising six flats with an area of 11,696 sq ft on Kowloon Tong’s Peony Road for HK$221.28 million (US$28.5 million), 21 per cent lower than the asking price.
The buyer is a Hongkonger who plans to redevelop it for his own use, said Ronald Yue, senior district associate director at Centaline Property Agency.
In another transaction this week, Poonam Harilela, a member of the wealthy Harilela family, sold a 1,211 sq ft flat in Dunbar Place, in Ho Man Tin, for HK$25 million, which resulted in a loss of some HK$2.1 million including other expenses, according to agents.
“The number of buyers has reduced a lot and those who still [want to] buy are looking to snap up bargains, said Billy Yim, sales director at Century 21 Northern Mid-Level Property Agency, adding that many buyers are waiting to pounce on distress sales, especially expensive homes.
Yim feels that there is still room for another 10 to 20 per cent discount from current levels on homes priced over HK$15 million because of the economic headwinds.
According to Savills, ongoing border restrictions and social distancing measures may affect the ability of both mainland and local buyers to view trophy assets.
As such, very few existing luxury properties are expected to come to market, while new investment into the local market may be hard to come by, suggesting that luxury volumes may fall, Savills added.
“With the virus recurring and the political situation uncertain, more luxury buyers may be inclined to look at overseas options for future investment,” said Simon Smith, senior director of research and consultancy at Savills.
Purchase the 120+ page China Internet Report 2020 Pro Edition, brought to you by SCMP Research, and enjoy a 30% discount (original price US$400). The report includes deep-dive analysis, trends, and case studies on the 10 most important internet sectors. Now in its 3rd year, this go-to source for understanding China tech also comes with exclusive access to 6+ webinars with C-level executives, including Charles Li, CEO of HKEX, James Peng, CEO/founder of Pony.ai, and senior executives from Alibaba, Huawei, Kuaishou, Pinduoduo, and more. Offer valid until 31 August 2020. To purchase, please click here.
More from South China Morning Post:
- Hong Kong actor Nicholas Tse’s former home sells for US$1.8 million loss, casts shadow on city’s luxury housing market
- Hong Kong’s deferred vacancy tax carries a US$279 million price tag, adding to the financial woes of a recession-busting budget deficit
- Kung Fu Hustle’s Stephen Chow mortgages The Peak house where HSBC’s Taipan House once stood