PROPERTY INSIGHTS Hong Kong Quarter 1, 2011 Economic Overview • • • Table 1 Economic indicators Indicator Period Unit Value y-o-y change (%) GDP at constant prices* Total exports Private Consumption Expenditure Unemployment rate (seasonally adjusted) Visitor arrivals Composite CPI Total retail sales value Q4 2010 Feb 2011 Q4 2010 Dec 2010 - Feb 2011 Feb 2011 Feb 2010 Jan 2011 +6.2 +24.9 +7.1 -1.0 pts +2.0 +3.7 +28.2 Source: Census and Statistics Department HKSAR, Hong Kong Tourism Board *In chained (2008) dollars HK$billion HK$billion HK$billion % Million HK$billion - 469.2 227.8 292.4 3.6 2.9 116.4 37.6 Market Overview Trends & Updates Total exports continued to soar, up 24.9% y-o-y to reach HK$227.8billion (US$29.2billion) in real terms in Feb 2011, mainly due to the boom of inbound tourism and increasing purchase power of mainland visitors (Table 1). Based on the grinding recovery for advanced economies and booming growth in emerging economies, the exports prospects for Hong Kong are generally positive, and the growth space will slow down. Hong Kong’s real GDP increased by 6.2% year-on-year (y-o-y) in Q4, whereas the growth is primarily driven by merchandise trading and financial industry. For 2010 as a whole, the real GDP grew robustly by 6.8%, more than offsetting the 2.7% contraction in 2009. This indicates that the Hong Kong economy staged a broad-based expan- sion in 2010. With the economy fully recovered by now, the outlook for 2011 is for the Hong Kong economy to return to a normal growth of 4% to 5%. Strong consumer confidence pushed the consumption expenditure up by 7.1% y-o-y in real terms, thanks to improving income and job market conditions (Table 1). Investment staged a notable rebound aim sanguine business sentiments. The surge in public sector building and construction activities also supported the strong domestic demand.
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Market Overview Trends & Updates€¦ · Hong Kong Quarter 1, 2011 Economic Overview • • • Table 1 Economic indicators Indicator Period Unit Value y-o-y change (%) GDP at constant
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PROPERTY INSIGHTS
Hong Kong Quarter 1, 2011
Economic Overview
•
•
•
Table 1
Economic indicators
Indicator Period Unit Value y-o-y change (%)
GDP at constant prices*
Total exports
Private Consumption Expenditure
Unemployment rate (seasonally adjusted)
Visitor arrivals
Composite CPI
Total retail sales value
Q4 2010
Feb 2011
Q4 2010
Dec 2010 - Feb 2011
Feb 2011
Feb 2010
Jan 2011
+6.2
+24.9
+7.1
-1.0 pts
+2.0
+3.7
+28.2
Source: Census and Statistics Department HKSAR, Hong Kong Tourism Board
*In chained (2008) dollars
HK$billion
HK$billion
HK$billion
%
Million
HK$billion
-
469.2
227.8
292.4
3.6
2.9
116.4
37.6
Market Overview
Trends & Updates
Total exports continued to soar, up 24.9% y-o-y to reach HK$227.8billion (US$29.2billion) in real terms in Feb 2011, mainly due to the boom of inbound tourism and increasing purchase power of mainland visitors (Table 1). Based on the grinding recovery for advanced economies and booming growth in emerging economies, the exports prospects for Hong Kong are generally positive, and the growth space will slow down.
Hong Kong’s real GDP increased by 6.2% year-on-year (y-o-y) in Q4, whereas the growth is primarily driven by merchandise trading and financial industry. For 2010 as a whole, the real GDP grew robustly by 6.8%, more than offsetting the 2.7% contraction in 2009. This indicates that the Hong Kong economy staged a broad-based expan-sion in 2010. With the economy fully recovered by now, the outlook for 2011 is for the Hong Kong economy to return to a normal growth of 4% to 5%.
Strong consumer confidence pushed the consumption expenditure up by 7.1% y-o-y in real terms, thanks to improving income and job market conditions (Table 1). Investment staged a notable rebound aim sanguine business sentiments. The surge in public sector building and construction activities also supported the strong domestic demand.
Residential Overview
•
•
Figure 1
Transaction volume of residential building units
Source: The Land Registry HKSAR
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2005 2006 2007 2008 2009 2010 2011
Number of S&P Agreements
•
•
•
Visitor arrivals amounted to 2.9 million in Feb 2011, up 2.0% y-o-y. As economic and labour market conditions improved, total retail sales rose 28.2% y-o-y to reach HK$37.6billion (US$4.82billion) in Jan 2011. Inflation was on an upward trend in 2010, reaching 2.4% in 2010. The inflation momentum continued in Feb 2011, with a CPI increase of 3.7% y-o-y. As more visible imported inflation from the soaring food price and bulk commodity prices, the inflation is forecast at 4.5% in 2011.
With the introduction of the market-cooling Special Stamp Duty (SSD) by the Government in Q4 2010, transaction volume dropped in early 2011, especially during the Chinese New Year holidays. However, the market significantly rebounded 24.3% month-on-month (m-o-m) in February. Meanwhile, the number of Sales and Purchase Agree-ments further climbed 9.7% m-o-m to reached 13,838 in March 2011, amounting to 36,602 in Q1 2011 (Figure 1).
In February, the seasonally adjusted unemployment rate dropped to a 2-year low of 3.6% (Table 1). The improving labour market and booming economic conditions underpin the development of local residential market. As a result, government measures only had a short-term impact on the market, and the residential price witnessed further increases in Q1 2011.
Thanks to the upbeat market sentiment, the local residential market boomed in Q1 2011. DTZ residential index of all markets strongly surged 15.7% q-o-q and reached new highs. In particular, the DTZ luxury residential index reached 215.1, posting a 26.6% y-o-y increase (Figure 2 & Table 2).
Propelled by the improving wage levels and economic outlook, the mass residential market was again outper-formed by the luxury market. DTZ mass residential index also jumped 22.1% y-o-y to reach 173.9. Meanwhile, the overall DTZ residential index reached 191.0, or a 24.2% q-o-q increase (Figure 2 & Table 2).
Residential price index (Q1 2005 – Q1 2011)
Source: DTZ Research
60
80
100
120
140
160
180
200
220
240
2005 2006 2007 2008 2009 2010 2011
Mass residential Luxury residential Overall
DTZ Index (Jan 2000 = 100)
Figure 2
Table 2
Table 3
Private residential market statistics
Total stock (no. of units)
Price index (Jan 2000 = 100)
q-o-q change (%)
y-o-y change (%)
Mass market
Luxury market
Overall
Source: Rating and Valuation Department HKSAR, DTZ Research
•
•
•
Total number of key luxury residential deals (HK$million)
Q3 2010 Q1 2011
82 51 32
Total consideration value 6,167
* for transaction over HK$100 million
Source: DTZ Research
+22.1
+26.6
+24.2
+15.7
+15.7
+15.7
173.9
215.1
191.01,095,575
81,697
1,013,878
Q4 2010
2,7325,248
slaed fo rebmuN
Looking forward, due to the solid economic fundamentals, growing price levels, and increasing participation of mainland buyers, we envisage that the local residential market will further climb on the back of strong user-end’s demand, in particular, the overall luxury residential market will see about 10% q-o-q price increase next quarter.
As the residential market continued to bloom in Q1, the luxury residential investment market also rebounded sharply from Q4 2010.
In Q1 2011, 28 major luxury residential investment deals were recorded, representing a 86.7% q-o-q increase. In total, the consideration value reached HK$6,167 million, posting a 125.7% q-o-q growth (Table 3).
Feature Story – Rate increase’s impact limited
Cost of mortgages
Introduction
Small rise in interest cost
•
•
Mortgage rate remains low•
Negative real mortgage rate continues
•
Interest Rate Property
Price (HK$)
Monthly Rental Income (HK$) Yield
Monthly Installment
(HK$)
Net loss/ profit (HK$)
HIBOR + 0.9% = 1.13% Feb 2011
HIBOR + 0.9% = 1.33% Mar 2011
P^ - 3% = 2.25% Feb & Mar 2011
5,000,000
5,000,000
5,000,000
10,417
14,583
18,750
10,417
14,583
18,750
10,417
14,583
18,750
2.50%
3.50%
4.50%
2.50%
3.50%
4.50%
2.50%
3.50%
4.50%
16,300
16,300
16,300
16,617
16,617
16,617
18,123
18,123
18,123
(5,883)
(1,717)
2,450
(6,200)
(2,034)
2,133
(7,706)
(3,540)
627
^Assumes the Hong Kong Dollar Prime Rate (P) is 5.25%
Table 4
Many Hong Kong banks raised the mortgage rates in March. Two banks suspended the H-based mortgage plans whilst most of other banks raised their H-based mortgage rates by 0.2%, a slight increase of the borrowers’ cost. However, according to DTZ Research’s research from the interest cost and supply-demand analysis, it is unlikely to cause dominant effect towards the housing price in Hong Kong.
The monthly installment will increase slightly for only approximate 2% after the rise of H-based plans from H+0.7% to H+0.9%. Before that, the mortgage rate is 2.25% for P-based plans and 1.13% for H-based plans. For instance, for a house of HK$5 million with 70% of mortgage for 20 years, the H-based installment will be 12% less than the P-based one before the mortgage rate changes (Table 4). Hence the H-based mortgage plan is more favorable for the moment. After the change, the H-based plan is still more economic and the monthly payment will increase slightly by only 2%, which is unlikely to lead to severe detrimental effect towards housing price. However, the signal of this change is worth noting.
The current mortgage rate is still negative in real terms after the change, represented by soaring inflation and low mortgage rates. On one hand, given the inflation of 3.7% and the low nominal mortgage rate (1.03%~2.25%) in Feb, the real mortgage rate is actually negative (-2.67%~1.45%). Given the SAR’s prediction of 4.5% inflation in 2011 and the latest mortgage rate, this abnormal situation of negative real mortgage rate is unlikely to change in 2011, which implies one could make money simply by mortgaging. On the other hand, the likelihood of raising interest rate in 2011 for the US is small as the latest sluggish 9.0% and 8.9% US unemployment rates in Jan and Feb respectively. Thereby, the negative cost of mortgage in real terms is anticipated to continue in the medium term.
The current mortgage rate is still much lower than the bubble level from the historical view. Concerns about the skyrocketing house price arise, as some reports regard the current situation as the Asia Financial Crisis in Jun 1997. However, the interest rate, as an important indicator of the cost of housing, for the moment is far from that of 1997. The current mortgage rate (1.33%~2.25%) is much lower than the 11% level in Jun 1997 and the 3.25% level in the global financial crisis in 2008.
This research report has been prepared by DTZ Research specially for distribution to Citibank customers.
Demand
Supply
Affordability ratio soared but still far from the peak•
External demand grows
•
Severe supply shortage continues
Summary
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•
Moreover, the buoyant housing demand and price are supported by the current affordability ratio. This is the essential factor towards housing price.
The emerging demand from the mainland intensified the disequilibrated market and also contributed to the price growth. As the rapid increase of mainland millionaires by the soaring real estate industry and the stagnant sentiment in mainland real estate market by the tightening policies, mainland capitals targeted on the Hong Kong residential market for either investment or hedging purposes. These capitals, accounted for about 20% of the demand, were enough to cause market disequilibrium and push price up further.
The supply of private houses is in severe shortage in recent years from the historical view. For instance, the new supply of residential (13,405 Units) in 2010 is far from the 2001-2010 level (18,518 Units), and the 1991-2000 level (26,536 Units). This shortage will persist with only 10,958 units expected in 2011. This supply shortage together with the soaring demand will dominate the market price upward.
The existing low mortgage cost in nominal term or negative mortgage cost in real term can sustain the mortgage market in short and medium term, despite of the slight rise in mortgage rate. On the other hand, the demand-over supply will continue to dominate the market price upward, as a result of the lack of supply, together with the robust demand from the local indicated by the installment affordability and the soaring demand from mainland investors.
GENERAL DISCLOSURE
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