Should we welcome new developers to the Hong Kong housing market?

November 4, 2015 / By

Over the past few years, Mainland Chinese customers were often blamed for boosting prices in Hong Kong, for both consumer goods and properties. Now, the land sale market is also noticing increasing involvement of developers from Mainland China. Of the eleven residential sites tendered by the Hong Kong Government in 2Q/3Q15, seven sites recorded Mainland Chinese contenders and four were eventually sold to these players well above market expectations. In some cases, land prices were even in excess of the current residential sales prices being achieved in the vicinity.

As an analyst covering the Hong Kong residential market, I have heard concerns from some people on the phenomenon’s potential impacts on the city’s future residential landscape.

The first common concern is that the aggressive approach of Mainland Chinese developers might further drive up housing prices and enlarge the housing bubble. In fact, for many Mainland Chinese contenders, a successful bid at this stage would represent their debut in Hong Kong’s residential playing field, so they are willing to pay a premium as an initial entry fee. Their strategy will likely be focused on building their brands in Hong Kong as part of their global expansion mandate, with profits still being an important consideration, but perhaps of a lesser concern. As such, the future sales price at the completed projects may not be as eye-popping as we anticipate.

Others are worried about the finished product offering being too divergent from market norms. The fact that these developers—especially those with substantial financial ability and seasoned track records in Mainland China—are backed by experienced Hong Kong developers in most projects should ensure the local standards are being matched. Their willingness to engage property consultants for additional advice should also give confidence to buyers. Moreover, increased competition brought about by the new entrants could help the city grow its free market reputation and offer homebuyers a more diverse choice of properties.

Additionally, our forecast suggests Mainland Chinese developers will not be inundating the market with new supply. Their contribution, whilst being on the rise, should only add up to no more than 10% of the total market supply between now and 2019. Therefore, their impact on the residential landscape should not be too significant, yet.


Source: Buildings Department, JLL


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