Buyers turn cautious amid elevated interest rates

• The residential transaction volume fell by 17.1% q-o-q in 4Q23. Developers have offered double-digit percentage price discounts and cash rebates to offload inventory. In December, SHKP set the average price for YOHO West in Tin Shui Wai at a discount of more than 20% compared to its Wetland Seasons Bay, which launched in the same area in 2022, and achieved a first-day sell-through rate of 94%. 
• The downturn in home prices has intensified. Homebuyers remained largely unresponsive to relaxations of residential stamp duties, which included shortening the applicable period of SSD, halving BSD and NRSD from 15% to 7.5%, and introducing a stamp duty suspension arrangement for incoming talents. The mass residential capital values fell 5.7% q-o-q in 4Q23 after falling by 2.5% in 3Q23.

Land supply falls below the annual target in FY2023/24

• In 3Q23, the number of Occupation Permits issued for luxury units fell to 60, including 52 units at One Stanley in Stanley and three at 11 Coombe Road in the Peak. 
• In 4Q FY2023/24, the government will not put up any residential sites for tender, which is unprecedented since the inception of the Government Land Sales Programme in 2010. The estimated private housing land supply in 4Q FY2023/24 is projected to yield 3,570 units, bringing the cumulative anticipated units from the land supply in this fiscal year to 11,530, below the annual target of 12,900.

Market activity in the high-end segment remains subdued

• In 4Q23, the transaction volume for residential properties valued at or above HKD 20 million fell by 14.4% q-o-q, and luxury capital values dropped by 3.8%. Among a scarce number of luxury sales transactions, a mid-floor unit at University Heights in Mid-Levels was sold for HKD 254.3 million, or HKD 78,560 per sq ft, SA.
• The inflow of non-local talents continues to support demand in the luxury leasing market. Although luxury residential rents maintained their ascent in 4Q23, leasing transaction volume fell by 15.5% q-o-q after the peak season.

Outlook: Performance of capital values and rents continue to diverge

• The potential rate cut in 2024 is expected to be moderate. Despite the cut, elevated interest rates are expected to continue to overshadow home-buying sentiment. Sales of luxury projects will likely remain slow, and developers’ attempts to stimulate sales by offering discounts may further pressure secondary market prices. Luxury residential capital values are expected to drop by around 5% in 2024.
• As sentiment in the sales market is expected to stay weak, residential demand should transfer to the leasing market. Meanwhile, the strong inflow of non-local talents and the gradual return of expatriates are expected to continue to drive up rents in the luxury leasing market. Luxury residential rents are expected to rise by 0%-5% in 2024.