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Both luxury and mass residential markets were supported by primary launches during a generally listless second quarter.

MARKET COMMENTARY The super luxury segment was sluggish with both Mainland and local HNWIs holding back, leading to a price adjustment of 1.5% in the townhouse market over Q2/2019. The recent US / China trade dispute has hit the core businesses of some Mainland and local tycoons, and the proposed Extradition Bill, though postponed, may also have pushed some of these billionaires to at least rethink of their asset allocation strategy within Asia. Luxury apartment prices on Hong Kong Island have held up well, with prices increasing by 3.6% in Q2/2019 and 5.6% over the first half of the year. Transaction volume, on the other hand, fell substantially by 24.8% YoY over the first half of the year, as many potential purchasers looked for bargains in the secondary market but few landlords were prepared to entertain, leading to a sharper decline in secondary transaction volumes (29.1%) over the same period. The Kowloon / NT luxury market saw transactions rebounding in 1H/2019 thanks to aggressive primary launches, with overall and primary transaction volumes both rebounding by 1.6% and 10.8% YoY respectively, led by sales of primary units in Shatin / Tai Po (103 units), Tuen Mun (92 units) and Ho Man Tin (78 units). As a result, Kowloon and NT luxury residential prices increased by 0.9% and 2.3% respectively over Q2/2019. Mass sentiment was mostly affected by external uncertainties, particularly the impact of the trade war on local job prospects, though active primary launches by developers meant that both transaction volumes and values were on par with last year.

The overall Hong Kong residential market recorded 21,685 transactions in the first four months of 2019, fl at compared with the same period last year, with strong primary sales compensating for the subdued secondary market. The primary market share of total volume increased from 22.4% to 37.4% in the first four months of 2019. MARKET OUTLOOK The latest sale of the residential Kai Tak Area 4C Site 1 for HK$12.916 billion (or AV of HK$18,080 per sq ft) for a price ‘below market expectations’ given its prime location, may indicate developers are turning cautious on future residential prospects. Nevertheless, with China Resources Land and Poly Property Group the winning bidders, beating off competition from local tycoons such as Cheung Kong and Sun Hung Kai, as well as developers with prior Kai Tak development experience such as K. Wah and Wheelock, Mainland developers could be embarking on a more active phase with an eye on larger and more prime residential sites. With local GDP growing at a much more moderate pace of 0.1% YoY in Q1/2019, together with uncertainties over the US / China trade negotiations and the direction of the local stock market, residential demand may pull back over the next three to six months, especially at the top end where asset allocation among cities is most mobile. The mass market may still be driven by primary sales but the increasing HIBOR and banks’ conservative attitude to mortgage portfolio expansion (many banks are cutting back cash rebates on newly granted mortgages) means developers may have to be more aggressive in providing their own financing packages to boost sales in upcoming launches.

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