Now that the spicy property taxes are gone, residential investments surge, mirroring 2021 trends

Since the spicey cooling measures were lifted, the residential market has seen a surge in activity. Primary and secondary transaction volumes have rebounded sharply, with notable increases in the Top-10 estates.

A significant development in the 2023-2025 Budget delivered on 28 February was eradicating previous market cooling measures. As a result, all residential property transactions are now exempt from the Special Stamp Duty (SSD), Buyer's Stamp Duty (BSD), and New Residential Stamp Duty (NRSD). Given the current economic and market conditions, the government has deemed these measures unnecessary.

In the week following the news, 110 transactions were recorded in the Top-10 estates, almost 280% above the previous week’s 29 and even surpasses the previous month's 104 transactions. Notably, Kingswood Villas recorded the most transactions, 27, up 580% week-on-week, while sales at Metro City in Tseung Kwan O increased 500%.

Removing the cooling measures was a shot in the arm for overall investment sentiment, with transaction volumes returning to normal. According to Centaline Agency, more than 400 transactions will likely be recorded this month, surpassing May 2021’s record of 414 and representing a 34-month high to become the highest monthly transactions in the last three years.

These developments indicate a significant shift in the market dynamics and highlight the positive effects of abolishing cooling measures. Investors are responding to the improved investment environment, facilitating a return to robust transaction levels and signalling a positive outlook for the residential property market.

Following the COVID-19 pandemic and rising interest rates, residential property prices have eased since 2021, falling 7% in 2023 and shedding a further 1.6% in January 2024, for a cumulative correction of more than 20% from their 2021 peak. The situation in the non-residential property market is similar. The average prices of offices fell by approximately 7% in 2023, while market data showed that Grade A office vacancies rose to about 16% at the end of last year.

?On 28 February 2024, HKMA announced amendments to relax the countercyclical macroprudential measures for property mortgage loans.

These adjustments include:

?i)?????????????????????? Raising the maximum loan-to-value ratio for self-occupied residential properties. After the adjustment, the maximum loan-to-value (LTV) ratio for self-occupied residential properties with a value of HK$30 million or below rose to 70%. For properties valued at HK$35 million or more, the ratio rose to 60%. The ratios for properties valued between HK$30 million and HK$35 million will be lower gradually to avoid a sudden drop in applicable LTV ratios. The maximum LTV ratio for non-self-use residential properties will be increased from 50% to 60%.

?ii)????????????????????? Increasing the maximum LTV ratio for non-residential properties from 60% to 70%.

iii)???????????????????? Increasing the maximum LTV ratio for property mortgage loans based on borrowers' net worth from 50% to 60%. This adjustment applies to residential and non-residential properties.

Subsequently, the Hong Kong Monetary Authority has announced the suspension of the mortgage stress test requirement, which previously necessitated an additional 2% to be added to the assumed interest rate. Under the new measures, first-time buyers must only ensure their monthly mortgage payments do not exceed 50% of their income to qualify. This significant adjustment effectively reduces the challenge of meeting the income requirements.

To illustrate the impact of these changes, consider the following scenario:

For a loan amount of HK$5 million, with a loan tenure of 30 years and an effective interest rate of 4.125%, the income requirement under the previous stress test would have been HK$50,634. However, now the income requirement is down to HK$48,464. This represents a notable reduction of HK$2,170 in the income requirement for potential borrowers.

These adjustments reflect the HKMA’s proactive approach to support and facilitate homeownership for first-time buyers. By easing the income requirements, homes become more affordable and accessible, providing a favourable environment for prospective buyers.

Mortgage limits for homes under HK$30 million are now 70%, providing direct and substantial help to people who are first-time or upgrade buyers. Buyers no longer need mortgage insurance since most transactions are under HK$30 million. The new measures will promote property exchange and circulation, improving the market’s health.

Using a HK$15 million new apartment in Kai Tak as an example, the mortgage down payment goes from 40% (HK$6 million) to 30% (HK$4.5 million), saving first-time or upgrading buyers HK$2.5 million.

According to the Rating and Valuation Department’s latest statistics, the prices of offices, flatted factories and retail premises have fallen by 22%, 11% and 21%, respectively, from their 2018 peaks.

Office Market

Industrial Market

Retail Market

The maximum LTV ratio for non-residential property will be adjusted from 60% to 70%. The move is an appropriate gift for small and medium-sized business owners severely affected by the pandemic and interest rate hike, allowing them to sell or increase their mortgages to cash out. It will support the continued economic recovery.

The maximum mortgage LTV ratio will be adjusted from 50% to 60% based on the applicant's net worth. This adjustment applies to residential and non-residential properties and will ease owners’ capital needs.

As the current market conditions evolve, we are witnessing a gradual release of purchasing power, accompanied by a notable increase in buyer confidence. ??It is important to note that prospective buyers primarily seek opportunities for bargain-priced sales, focusing on value rather than engaging in price-chasing transactions.

We anticipate a continued upward trend in secondary transaction volumes in the short term. Secondary transaction volume will likely reflect 2023 figures. Based on this projection, we can expect an average of 1,400 primary and 5,000 secondary transactions monthly. This would likely result in more than 15,000 primary and 50,000 secondary transactions for 2024.

However, it is crucial to recognise that home prices depend on factors such as the age, location, and quality of each development. Newer developments will likely lead a gradual price rebound in the next few quarters. On the other hand, older developments may still face downward pressure as developers may continue to launch new homes at attractive prices to clear their inventory.

In light of these dynamics, buyers, sellers, and industry professionals must stay informed and make calculated decisions based on a thorough market understanding. The real estate market presents opportunities and challenges, and by carefully assessing the age, location, and quality of developments, stakeholders can effectively navigate the market landscape.