Impact of upcoming legislation on the Hong Kong primary sales market

January 24, 2013 / By  

In an effort to improve market transparency, a new legislation will be introduced to govern residential sales in the primary market. From April 2013 onwards, developers will be required to launch a minimum of 50 units or 20% of the total number of units in a development or a phase of a development with 100 or more units, whichever is higher, and at least 10% of the total number of units in each subsequent batch launched thereafter.

This differs slightly from the current regulation, which requires a minimum of 50 units or 50% of the total number of units as part of the first batch of units launched and the absence of restrictions on the number of units on subsequent launches. While launching a minimum number of units in the first batch, developers have taken the current regulation to their logical extreme – launching ‘batches’ with a single unit in subsequent batches to gauge market response and aggressively set prices. However, by forcing developers to launch a greater number of units onto the market, there will be fewer chances for them to test the market compared to before.

The new rule will force developers to make a trade-off between maximising sales proceeds and volumes with trying to achieve a high sales rate. Though developers are able to suspend sales if buying demand is weak and issue a revised price list, they are unlikely to do so as it could undermine the confidence of buyers. I think developers are likely to take a more conservative pricing strategy at the outset to favour sales momentum, especially in an environment where government policy has been getting more and more restrictive.

I think home prices are unlikely to see pressure as a result of these measures and will still largely be priced on par with those in the secondary market as the key market fundamentals remain intact. Therefore, I reckon that while the new regulations may help improve market transparency, they are unlikely to have any meaningful impact on pricing, which I expect to continue to grow moderately over the near term.

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