3 January 2017 - As per the Land Registry of the Hong Kong government, primary sales are defined as sales from developers and secondary sales refer to sales from parties other than developers. Looking at the Land Registry data below, apart from sales which were concluded under the Home Ownership Scheme, the Private Sector Participation Scheme and the Tenants Purchase Scheme, secondary sales consistently outperformed primary sales by a slim margin in 2016.
| Number of Agreements for Sale and Purchase of Residential Building Units in 2016 | |||||||||||
| Month | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 |
| Primary Sales | 450 | 234 | 641 | 1294 | 1476 | 1538 | 1142 | 1628 | 3474 | 2251 | 2212 |
| Secondary Sales | 1595 | 1573 | 1728 | 3200 | 3110 | 3082 | 3101 | 4193 | 4352 | 4350 | 4527 |
| Total | 2045 | 1807 | 2369 | 4494 | 4586 | 4620 | 4243 | 5821 | 7826 | 6601 | 6739 |
Aside from the secondary market’s clear advantage in terms of volume, buyer’s decisions are affected by personal preference, financing options and wider contextual factors affecting the Hong Kong real estate market.
Unit Size and Location
Whilst new developments contain a fair share of luxury options, the clear advantage which properties have in the secondary market are size and location. Whilst a few new housing projects have been propping up in Mid-Levels and Ap Lei Chau (benefit from the opening of the South Island Line), the raft of projects currently pending for pre-sale in Hong Kong include One Kai Tak and K City over by Kowloon side, The Pavilla Bay in Tsuen Wan and the The Ocean Pride next to Tsuen Wan West station.
Given land scarcity in Hong Kong, much of new housing supply is ultimately concentrated in the New Territories. This in tandem with the government encouraging the construction of small flats (under 600 gross square feet), leaves buyers looking to either capitalize on the convenience of Hong Kong Island or find a reasonably sized apartment, with a limited set of options in terms of primary sales.
Financing
Buyers who seek to take up a mortgage in the secondary market are more restricted in terms of financing. Relying on government regulations and traditional lenders, they must be aware of the maximum Loan-To-Value Ratio which allows up to 50-60% of the property’s value depending on price. Though the value of properties in the secondary market is relatively cheaper compared to primary units of a similar size and location, with the onset of the revised Ad Valorem Stamp Duty introduced by the Hong Kong government in November, the flat rate of 15% could pose an additional burden to non-first time buyers.
Though the newly imposed stamp duty also affects primary sales, developers have been more than willing to shoulder the extra costs imposed on property transactions. Flush with cash from record property prices, Sun Hung Kai slashed prices of its recent developments in Tuen Mun by 13 per cent in November whereas Tai Cheung Holdings offered to cover buyers liable for the 15 per cent stamp duty, providing tax relief worth HK$68 million for the purchase of their luxury villas on the Peak which are valued at HK$457.6 million each. It is rather infeasible for sellers on the second-hand property market to offer similar incentives.
Outlook
With the onset of the government stamp duty and the recent interest rate hike by 25 basis points, market conditions on both fronts have soured. Given existing barriers to purchase, JLL predicts that primary home sales in 2016 are to reach no more than 17,800 units and primary home sales in 2017 will remain muted. Given the drop in residential transactions, developers may delay the release of their housing projects and continue to build up inventory whereas property owners may wait on a change in prevailing market conditions of lackluster demand before putting their properties up for sale.
