HK residential supply outlook: Tseung Kwan O, Tai Po, Yuen Long hardest hit
The newly published Hong Kong Property
Review 2014 provides new data evaluating the future residential supply by district.
The author takes this opportunity to analyse
the information and highlight favoured and disadvantaged districts for the
benefit of potential buyers.
Generally, districts with abundant supply will see purchasing
power diluted by the new completions, thereby weakening the momentum of home
price increases. The author adopts two measures in his analysis: 1) the ratio of new completions to
current stock to measure degree of such supply abundance, and 2) the ratio of
theoretical rise in vacancy rate (due to new supply) to starting vacancy rate.
These two metrics help evaluate the relative strength of the new supply, and then
ranked the districts according to these two indicators. The result is tabulated
below:
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Table 1: Future supply and theoretical vacancy rates – Buy blue areas
and avoid red ones
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Eastern, Southern
and Kwai Tsing are the low supply districts for 2014-15
The R&V
Department’s forecast completions suggest that Eastern, Southern, and Kwai
Tsing will be the least supplied districts: these districts have the lowest “rise
vacancy rate” and “ratio of rise in vacancy to starting vacancy” by the end of 2015, indicating they are the districts least
affected by new supply (blue shades in Table 1). This will no doubt be
supportive for home prices in these 3 districts. Looking at price performance,
major housing estates in these districts saw prices rise by 4%
YTD, and are expected to further outperform (Chart 1).
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Chart 1: Trend of Centa-City Index of best 3 regions, worst 3 regions
and the overall index
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Vulnerable
districts: Tseung Kwan O, Yuen Long, Tai Po
Tseung Kwan O (falls in Sai Kung
District), Yuen Long and Tai Po look to be the most vulnerable districts (red
shades in Table 1). These three districts are also plagued by supply over the
past three years too, with a host of developer projects coming to the market,
including Providence Bay, Mont Vert, Hemera, Tseung Kwan O zone 66 etc, which kept
vacancy rates at elevated levels. Without new buying demand from other parts of
Hong Kong, these three districts could see vacancy rates reaching double digits
in the next two years. Year to date, home prices of
leading real estates in these three districts have risen less than the low
supply districts (Chart 1).
It should be
pointed out that the above analysis only makes use of expected vacancy rates,
while the property market is influenced by other factors, including location, presence
of public housing, interest rates, government policies, etc. Vacancy is buy one
of the many considerations when investing in property and buyers should base
their decisions after considering all factors.
Administrative
intervention caused the market failure
Since the end of 2009, government intervention
in the housing market has not stopped – from restricting Loan-to-value (LTV) ratio
for luxury homes through to the latest legislation on Double Stamp Duties (DSD).
These measures have twisted the market’s pricing mechanism, causing prices of small/medium
sized units to irrationally rally while prices of larger units languished.
During 2006-2009, when
property prices were determined by supply and demand, large units (where inventory
was the lowest, and where the government should be supplying more land) saw the
biggest rise in prices (Chart 2). However, the well intending bureaucrats, from
2010 to 2013, small flats where most trading up from should be taking place,
witnessed the biggest rise in prices, thanks to government policies to provide
easy credit to small flats buyers and the
‘HOS-for-secondary-market-white-form-buyers’ policy (Chart 3).
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Chart 2: Before intervention, large units saw faster price
rises than small units
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Chart 3: After intervention, small units had higher price
increases than large units
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The road to hell
is paved with good intentions – the saying seems particularly appropriate to
the HK housing market. As dysfunctional anti-market policies creates ever more
imbalances in the market, the future supply will inevitably be more and more
detached from the real needs of the HK people.
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Table 2: Home prices in leading estates before/after government
intervention
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Special thanks to
Mr Leung Kai Hong in assisting the collection of data and charts related to
this article.
