Hong Kong Residential Market Outlook 2025: Focus on New Property Absorption, Luxury Housing Market Stabilizes.

The Punkin Group released a report on the analysis of the Hong Kong real estate market for the fourth quarter of 2024, indicating that the overall property market in Hong Kong is in a downward trend in 2024. The Hong Kong government announced the comprehensive withdrawal of the Residential Property Stamp Duty (RSD) in February this year, leading to a surge in residential property transactions. However, due to various internal and external factors, the transaction volume and prices of various property types fluctuated and fell back, with non-residential properties performing less well. The bank expects that the residential property market next year will mainly focus on digesting the new supply, while luxury properties are expected to stabilize and improve. According to the Hong Kong Land Registry data, as of November 2024, a total of 48,996 residential transactions were recorded for the whole year, with 16,025 first-hand transactions exceeding the levels of around 10,000 transactions for the whole year of 2022 and 2023. The second-hand transactions recorded 32,971, which is similar to the past two years. However, the withdrawal of the RSD did not reverse the "bear market" situation in the Hong Kong property market. As of October this year, the overall residential property prices were down by about 6.8% and 27.1% compared to the end of 2023 and the peak in July 2021, respectively. In terms of rentals, buyers maintained a wait-and-see attitude, and increased overall leasing demand due to talent programs led to a 4.8% increase in overall residential rents in the first 10 months of this year. The Punkin Group anticipates that developers will continue to actively sell their projects in 2025. With the declining interest rate cycle, there is still room for a drop in the actual mortgage interest rate next year, and the loan-to-value ratio will further decrease. This, combined with the fact that new property prices have fallen by about 30% or more from their peak in previous years, allows "home buyers" to purchase new projects with better quality buildings at a lower cost, or purchase older buildings with larger areas for the same cost. In the luxury property market, due to the relaxation of investment immigration conditions by the Hong Kong government, as well as the uniqueness and scarcity of the luxury property market, the performance of the luxury property market this year is better than that of small and medium-sized unit markets, with more active transactions. The bank points out that some individual new luxury property projects are not affected by the overall decline in property prices, and even set new high price records per square foot in the area. It is believed that the luxury property market in 2025 will continue to develop steadily. The report also indicates that the rental prices in the commercial property market continued to decline in 2024, affecting the repayment capacity of related property mortgages. This has led to developers and strategic investors rushing to sell their assets to raise cash, affecting market sentiment. The overall market performance is inferior to the residential property market, with prices of various types of non-residential properties falling by about 15% to 20% this year. Additionally, the overall office vacancy rate remains high, and Punkin believes that as the market has not yet absorbed the new office floor area, coupled with weak demand, office sale prices and rents are expected to continue to adjust downward in 2025. Benefiting from the current low rental levels, the vacancy rate for shops in the core areas remained in single digits this year. The bank points out that due to the continued trend of Hong Kong people going north and traveling abroad during holidays, shop rents in the retail and food and beverage industries are expected to remain flat next year amid a contraction. In addition, there are variables in the demand for factory and warehouse properties, but based on the low vacancy rates, the outlook for the office and warehouse property market is cautiously optimistic for the rest of the year. In the shopping mall market, there were about a dozen whole-property transactions recorded this year, with some properties originally used for hotel development being converted into student dormitories. The bank suggests that as there is currently a demand for student accommodation outweighing supply, the market can consider converting some suitable shopping malls into student dormitories to increase accommodation supply in the short term. This can also help owners increase the value of their assets through repositioning and renovation, increasing returns and improving the investment property market atmosphere.