March demonstrates robust market momentum with 5,000+ transactions

On 28 March, the Rating and Valuation Department released the preliminary findings of its annual review of production and activity within the local property market.

During 2023, 13,850 private domestic homes were completed, indicating a 35% decrease compared to the figures from the previous year, 2022. These completions were distributed as follows: 50% in Kowloon, 44% in the New Territories, and 6% on Hong Kong Island. Notably, Kowloon City (Kai Tak) emerged as the leading district in terms of housing supply, closely followed by Tuen Mun. Together, these two districts accounted for 40% of the overall completions.

The take-up rate of these residential units reached an impressive 15,670 units, marking a 12% increase from the previous year's numbers. After 2023, the vacancy rate declined to 4.1% of the total housing stock, translating to approximately 52,150 units. It is worth mentioning that among these vacant units, around 5,040 were still awaiting the issuance of a Certificate of Compliance or Consent to Assign despite already obtaining the Occupation Permit.

The decline in the vacancy rate can be attributed to Hong Kong’s robust housing demand, particularly driven by professionals relocating to the city. If the 5,040 units awaiting certification were excluded, the vacancy rate would have dropped from 4.1% to 3.7% last year. Despite the increase in development completions in recent years, the vacancy rate has remained relatively stable between 3.7% and 4.4%, indicating consistent demand and occupancy levels.

In addition, the significant decrease in private residential completions in 2023 affected vacancies. With only 13,850 units completed, representing a year-on-year decrease of approximately 30%, the completion volume fell far short of expectations. However, the Rating and Valuation Department predicts a substantial rebound in completion volume to 22,270 units this year, followed by a further increase to 25,530 units next year, with most of the supply concentrated in Kowloon and the New Territories. Notably, Kowloon City (Kai Tak) alone is expected to contribute 26% and 27% of the total supply in these two consecutive years.

The budget announcement in late February outlined plans to extrapolate the average annual completion of more than 19,000 units in the five years starting from 2024. However, after considering the projected completion volume for ’24 and ‘25, pundits estimate that the completion volume over the next three years will experience a significant decline, averaging approximately 16,300 units per year. This projected decrease raises concerns about potential insufficient future supply.

Following the removal of all spicy taxes and the increased mortgage ratios in February, the primary market experienced a sharp increase in sales in March, particularly for remaining units. According to Midland Research, the cumulative number of vacant flats, including pre-sold and remaining units, decreased by approximately 4.7% from about 21,506 units in February to about 20,486 units in March. This decline represents the most substantial monthly decrease in 33 months since June 2021.

Several new projects, including large-scale developments, began last month. However, the previous lag in completions and March’s 4,000 primary market transactions have reduced the cumulative number of remaining units. Notably, the primary market in March was predominantly driven by the sales of remaining units, with approximately 33% of the new projects launched comprising remaining units, while the remaining 67% constituted new projects. The primary market is expected to continue to perform well this month, with more units being absorbed, further reducing unsold units.

According to the Land Registry, the number of registered transactions for all property types, including primary and secondary private residential, primary public housing, industrial, offices and shops, car parking spaces, and others, increased by approximately 57.2% month-on-month to 5,013 in March. This figure marks a return to the 5,000-sales mark in May 2023. However, it is essential to note that the impact of the removal of spicy taxes has not yet been fully reflected in the March transaction figures. As the time required to sign all the documents and register the transaction with the Land Registry, some of last month’s sales will only be reflected in April. This month’s figures can surpass the 9,000 level to reach a 33-month high since July 2021.

After three consecutive quarters of decline, the number of property transactions in the first quarter of this year rebounded, reaching 12,603 cases. This figure represents a QoQ increase of approximately 23.1% compared to the 10,234 cases recorded last quarter. The market will only reflect all the changes announced in February in Q2, and the number of transactions will increase significantly.

According to statistics from Midland Research, excluding primary public housing, the total number of primary and secondary private residential transactions in the first quarter was 10,464. This figure reflects a substantial increase of approximately 28.6% compared to the 8,136 transactions recorded in the previous year’s fourth quarter.

In the first quarter, 1,955 transactions involving industrial, offices, shops, car parking spaces, and other properties were recorded in the non-residential market, representing a moderate 3.7% QoQ increase. However, primary public housing performed poorly, with only 184 transactions in the first quarter, indicating a 13.2% QoQ decline.

Removing the Double Stamp Duty (DSD) and Buyer's Stamp Duty (BSD) unleashed the market’s pent-up purchasing power, leading to a sharp increase in private residential transactions. A thriving property market benefits Hong Kong's economy, rebuilding confidence in the city's future, stabilising morale and allowing owners to cash out and reduce negative equity. It stabilises the financial system and protects private sector wealth.

Furthermore, the absence of DSD and BSD has attracted many new arrivals to participate in the market, fostering a sense of belonging and encouraging long-term settlement in Hong Kong. The property market’s recovery directly benefits industries such as banking, construction, and legal services, thereby driving overall economic growth.

While I expect property prices to decline further in Q2, we will see prices gradually stabilise as transaction volume increases.