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Cushman & Wakefield: Residential Sales and Property Investment Post Strong Recovery in 2014, Pushing Prices to New Highs with Momentum to Continue in 2015

-- Total investment volume of property transactions above HK$100 million increased by 18% year-on-year in 2014, led by office and retail investment. All sectors recorded capital value growth in 2014.
-- Current market fundamentals will remain intact in 2015, supporting stable to slight price growth across most asset classes. Office and industrial properties will outperform with prices to increase by 5%.
-- Driven by strong first-hand sales and a more active second-hand market, total residential sales increased by 26% in 2014. Robust demand pushed prices to a new record high.
-- Homebuyers will continue to execute purchases due to expectations that demand will continue to oustrip supply and that prices will rise further. Properties priced below HK$10 million will see prices increase by an additional 5% to 10% in 2015.
Cushman & Wakefield
2015-01-22 18:20 4261

HONG KONG, Jan. 22, 2015 /PRNewswire/ -- Cushman & Wakefield, the world's largest privately owned real estate services firm, today released a year-end update on the Hong Kong investment and residential sales markets and its outlook for 2015. 

Investment market sees a 18% increase in volume in 2014, reflective of revived market sentiment; capital values increased across all major sectors

In 2014, the number of investment cases above HK$100 million increased by 13% year-on-year to 254, while investment volume increased 18% year-on-year to HK$86.4 billion. Among the five major property types including hotels, investment volume was highest in office properties (HK$27.7 billion), followed closely by retail properties including composite buildings (HK$26.1 billion). Investment volume of retail properties posted the strongest growth in 2014, having increased by 79% year-on-year, followed by investment volume of industrial properties at 44%. Office investment volume increased by 2% in 2014. Strong performance in 2014 is attributed to investors renewed confidence in the wider market facilitated by key factors including resilient residential demand and prices, limited non-residential supply, and in most sectors a still favorable leasing market. Local and PRC developers, end-users, overseas funds and local investors were active in executing purchases of tradable assets made available in 2014.      

Many investors have adapted to the government's cooling measures, as evidenced by the rebound in investment and the string of record breaking deals and prices in 2014, but also the recording of more equity transfer cases where buyers can circumvent stamp duties. Office investment was highlighted by Citi's purchase of the East Tower of One Bay East for HK$5.43 billion in the second quarter, as well as a concentration of investment in decentralized areas such as Kowloon East and Hong Kong South. Purchases for self-use increased, while investors continued to seek strata properties for rental returns. Office capital values rose by 3.1% in 2014, while values in Kowloon East increased by 9.4%.     

Retail property investment in 2014 was boosted by the Link REIT's disposal of nine shopping arcades and the shift of investment to non-prime and suburban locations. Most recently, Laguna Plaza in Kwun Tong was purchased by Fortune REIT for HK$1.92 billion, the largest retail transaction concluded this year. Investment in industrial properties increased as the year progressed due to investors' keen interest in acquiring en bloc properties for investment and revitalization, while increasing rents and limited supply is supporting purchases by self-users. Following a handful of en bloc transactions, industrial investment volume increased to HK$6.5 billion in the fourth quarter of 2014, a historical quarterly high. Industrial capital values increased by 4.9% in 2014 and are poised for another year of moderate growth in 2015.   

Kent Fong, Executive Director, Investment -- Hong Kong, said, "We expect the residential sector to stay buoyant in 2015 while fundamentals in most non-residential sectors will remain intact, further supporting investors' confidence in the wider property market. Market conditions will remain stable in 2015, including low interest rates and limited supply of investment-grade and tradable properties, thus supporting stable to slight price growth across most asset classes. Core office and industrial properties are more likely to outperform due to stable occupier and investor demand combined with low vacancy, with values expected to rise by approximately 5%. The drop in demand for prime retail shops and the increasing office supply in Kowloon East will put slight downward pressure on rents and prices of these properties in 2015."  

Residential sales rebound in 2014, grow by 26%; prices will continue to climb higher in 2015

Driven by strong first-hand sales and a more active second-hand market, total residential sales increased to 63,807 units in 2014, growth of 26% year-on-year. First-hand sales grew by 53% year-on-year to 16,857 units, the highest annual total since 2007. The second-hand market also saw an uptick in activity with sales having increased by 19%. Comparing the second half of 2014 with the first half, residential sales increased by 38%. Following the slight relaxation of Double Stamp Duty (DSD) in May, enhanced buyer sentiment lifted both first and second-hand sales in the second half of 2014 and helped push residential prices to a new record high. Strong first-hand sales performance this year is credited to developers launching more projects with smaller units which were met by ample demand among end-users and first-time buyers. The first-hand market continues to account for one fourth of total transactions, with sales still heavily driven by developers' more aggressive pricing strategies and the narrow price gap against second-hand homes.

Residential prices climbed to an all-time high to close out 2014. According to government statistics from the Rating and Valuation Department, the All Classes Territory-Wide price index increased to 274.0 in November, indicating a growth of 11.8% for the first 11 months of the year. In the luxury residential market, sales activity remained generally subdued throughout the year as stamp duties remained firmly in place. Despite slower demand, luxury residential prices have also continued to climb while some locations are still achieving record-breaking prices. According to Cushman & Wakefield Research, luxury residential prices increased by 1.8% in 2014. Values decreased mildly during the first half of 2014, but achieved price growth of 4.9% in the second half of the year. Cushman & Wakefield expects residential properties priced between HK$30 to HK$100 million to achieve price growth of 5% in 2015, while properties priced above HK$100 million will see stable prices. Existing owners will continue to face minimal pressure to reduce asking prices due to their low holding cost and also more limited supply of luxury properties.    

Vincent Cheung, Executive Director, Valuation & Advisory Services -- Greater China, said, "First-hand sales will further increase in 2015 as developers launch more projects and capitalize on the strong demand for smaller units and mid-priced flats. Homebuyers will continue to execute purchases in 2015 due to expectations that it will take several more years for new supply to oustrip demand and that prices will continue to rise until this situation materializes. Exceptionally strong demand for properties priced below HK$10 million will support another year of healthy price growth in 2015, whereas I expect prices for these properties will increase by an additional 5% to 10%."

About Cushman & Wakefield
Cushman & Wakefield is the world's largest privately-held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the world's major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and assignments. Founded in 1917, it has 250 offices in 60 countries and more than 16,000 employees.  It offers a complete range of services for all property types, fully-integrated on a global basis, including leasing, sales and acquisitions, debt and equity financing, investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has more than $3.7 billion in assets under management.  A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge. In Greater China, Cushman & Wakefield maintains seven market-leading offices in Beijing, Shanghai, Chengdu, Guangzhou, Shenzhen, Hong Kong and Taipei. More information is available at www.cushmanwakefield.com.

Source: Cushman & Wakefield
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