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Luxury sales volumes dwindle

LUXURY VOLUMES FALL SHARPLY WHILE PRICES MODERATE Luxury volumes on Hong Kong Island declined significantly from April onwards as a series of threats including the trade war, a subdued stock market and more recently the social unrest shifted the attention of investors overseas. Among HNWIs’ and family offices, investment strategies turned to more conservative themes with few choosing to invest in super-luxury housing, in particular on Hong Kong Island. As a result, a sharp decline in sales of luxury properties (over 1,000 sq ft/over HK$10 mn) was noted from near 100 in April to around 10 in September, a 90% reduction. The Kowloon / NT luxury the market also saw a fall in transactions, albeit more gradually over the past few months, with primary launches in Ho Man Tin and Shatin / Tai Po helping to sustain buyer interest in a difficult market. Volumes declined by 54% from April to September, reaching 57 transactions. The super-luxury segment saw very few transactions with local wealthies refraining from buying trophy assets as the ongoing trade war had a negative impact on their businesses, both in Hong Kong and China. Only eight transactions of over HK$100 million were recorded on the Peak and Southside in Q3/2019, significantly lower than the 25 super luxury premises transacted last quarter, and marginally lower than the 11 transactions recorded a year ago when investment sentiment was clouded by the first interest rate hike. With lacklustre activity levels, luxury residential prices receded across the board in Q3/2019, with luxury apartment prices on Hong Kong Island slipping by 1.7% q-o-q. It is worth remembering that luxury prices are being supported by constrained supply levels, negative real interest rates and ample local liquidity and the likelihood of steep price discounts still seems remote. VACANCY TAX PROMPTS FURTHER PRIMARY SALES IN THE MASS RESIDENTIAL MARKET The gazette and likely implementation of the vacancy tax proposal by year-end has prompted further primary sales, which have been escalating over the past few months. In the first eight months of 2019, a total of 15,601 primary transactions were recorded, representing 36% of total volume over the period, 43% higher than the same period in 2018. Such an increase has completely offset the decline in secondary sales (-19% y-o-y), so overall residential transaction volumes remained relatively constant from January to August in 2019 as a result. The implementation of the vacancy tax later this year should accelerate developers’ launches of backlog units as well as new projects, maintaining market momentum to year-end. THE RECENT POLICY ADDRESS MAY FUEL SHORT-TERM DEMAND, BUT LAND SUPPLY SOLUTIONS REMAIN LONG-TERM The surprise rise in the LTV ceiling for 80% and 90% mortgages to HK$10 million and HK$8 million respectively may fuel short term demand for secondary premises in those particular price brackets, with some landlords already reacting by increasing asking prices by 5% to 10%. While down payments for these types of the unit will be significantly lower (more favourable in the secondary market with no financing

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