While mass-market sales have stagnated, the ultra-luxury sector is seeing increased interest from opportunistic buyers amid distressed sales, according to Savills in its Market in Minutes – Hong Kong Residential Sales report in August 2024.
- The mass market saw a drop in both prices and transaction volumes towards the end of Q2 as initial excitement from the cooling measures' withdrawal waned.
- Property developers are implementing tactics such as below-market pricing and flexible payment plans to stimulate sales, yielding only short-term results.
- After a brief price rebound of 2.4% in March and April, residential prices declined by 2.6% through June.
- Anticipated interest rate cuts by the US Federal Reserve could rejuvenate market sentiment and spur primary sales activities in Q4 2024.
- Distressed sales in the super luxury sector attracts ultra-high-net-worth individuals seeking trophy assets.
Price and Volume Decline
The residential real estate market in 2024 is encountering a challenging recovery path. Following the relaxation of cooling measures in April, excitement quickly faded, leading to a notable decline in both prices and transaction volumes by the end of Q2. The buzz surrounding the market has significantly subsided after two months of heightened activity, with primary transactions dropping from 5,700 to below 3,000 in May and June.
Developers Adjust Strategies to Stimulate Sales
The momentum in first-hand sales of mass-market residential properties has dwindled. Property developers are now exploring various tactics to stimulate sales, including pricing below market rates and offering flexible payment plans. These strategies allow buyers to spread a portion of the down payment over 1-2 years, but they have only produced short-term results and may have unintended consequences for the secondary market by altering current property values. After a brief rebound of 2.4% in residential prices during March and April, the market has reverted to a downward trend, registering a 2.6% decline through June.
US Fed Rate Cuts
The US Federal Reserve has signaled its intention to begin cutting interest rates, potentially starting in September by 0.25%. While it is unlikely that Hong Kong banks will follow suit immediately, as prime rates have only increased by 1 percentage point compared to over a 5-percentage point hike in the US, sentiment could improve significantly if rate cuts occur. This may trigger another wave of primary sales activities in the final quarter of 2024.
Distressed Sales Drive Opportunities in the Ultra-Luxury Market
The ultra-luxury sector is experiencing notable upheaval, with distressed sales becoming more prevalent, particularly in prestigious areas like The Peak. Recent transactions have seen average price reductions of 46% compared to COVID-era valuations, enticing opportunistic buyers into the market. Noteworthy sales include the HK$1.1 billion transaction of Houses A-D at 46 Plantation Road. Nevertheless, some eye-catching sales of prestigious properties have also been observed, such as the HK$468 million transaction for a mansion on Island Road, highlighting continued interest in rare, blue-chip assets.
Looking Ahead
As financially pressured owners look to offload valuable assets rarely seen on the open market, these exceptional offerings are expected to attract significant interest from cash-rich buyers. However, the final sales prices will ultimately depend on individual sellers' financial situations and their willingness to sell.
Mr. Jack Tong, Director, Research & Consultancy of Savills commented, “Mass market sees price and volume drop towards end of Q2 as initial excitement due to cooling measures’ withdrawal gradually faded.”
Ms. Cherrie Lai, Senior Director, Head of Residential Sales, Development & Investment, Prestige Home, Savills said, “The super luxury sector saw more prestige and rare stock being made available to the market of late, attracting interests of ultra-high net worth individuals / families to pursue their trophy assets, which are inaccessible in previous robust market.”