After a quiet 2020, the luxury residential market in Hong Kong has swiftly picked up in 2021. Transactions of high-value units are expected to register a historic high this year. In the first nine months in 2021, transactions of luxury residential units (consideration over HKD100 million) already grew by 131.4% y-o-y and was 23.6% higher than that in 2018 when the market was relatively buoyant (Figure 1). The effect of price movement during the past three years was minimal as luxury residential prices were broadly similar during the period. Notwithstanding the strong economic recovery in Hong Kong so far, the significant surge in activities is remarkable, especially considering the strict travel restrictions are in place, which possibly kept some offshore capital from entering the market.
In addition to the economic recovery, many other factors are contributing to the transaction boom.
Figure 1: No. of Transaction of Luxury Homes (consideration over HKD 100mn) by 3Q
Source: EPRC, JLL
Firstly, since 2019, luxury residential property prices have corrected more deeply than the mass and medium sector. The pandemic caused the luxury sector to pull back further. According to JLL research, the luxury residential capital value dropped 12.6% in 18 months, between mid-2019 and end-2020. Entering into 2021, as prices corrected sufficiently, buying sentiment began to return and transactions rose. Many high net worth families bought luxury homes for investment purposes for their rarity values. Consequently, luxury residential capital value rebounded by 5.7% up to 3Q21, though it remains 7.6% below the level at the peak (Figure 2).
Figure 2: JLL Luxury Residential Capital Value Index
Source: JLL
Secondly, plenty of high-value units are available for sale, notably in the primary market. A total of 478 E-class residential units (saleable area >1,60 sqm) are expected to be completed in 2021, an increase of 83.8% from 2020. As newly launched luxury units can typically command visible premiums over their secondary counterparts, a larger supply naturally contributes to a higher transaction volume, notwithstanding the slow sale pace in respective projects.
Lastly, the credit goes to a robust IPO market where Hong Kong is consistently most highly ranked among the major bourses. A rising number of senior executives of listed companies, mainly from China, became property owners as first-time buyers, especially for recently listed companies. For example, Li-Ning’s founder family purchased a unit at ‘21 Borrett Road’ for HKD232.8 million earlier this year.
Hong Kong’s luxury home market has always appealed to investors not on a rental return basis but its rarity value. The intensely tight housing supply and a dearth of traditional luxury precincts contribute to the exceedingly high values of luxury properties here. Looking ahead, despite a somewhat higher supply of large size units in the near term, proper luxury units in desirable locations will continue to be acquisition targets by wealthy buyers both as a dwelling and/or a prime investment asset.
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