Investment Volume Reaches New High Post-DSD; Capital Values Resilient to Cooling Measures

PR Newswire

HONG KONG, July 29, 2014 /PRNewswire/ -- Cushman & Wakefield, the world's largest privately owned real estate services firm, today released a mid-year update on theHong Kong investment and residential sales markets and the outlook for the second half of 2014.

Investment activity stabilizing, evidence of investors' renewed confidence; capital values increase slightly in 1H 2014

The investment market ended the first half of 2014 on a high note, whereas second quarter investment volume totaledHK$22.7 billion, an increase of 61% quarter-on-quarter. First half investment volume across the five major property sectors including hotels totaledHK$36.8 billion, up from HK$26.9 billion in 2H 2013 or an increase of 37%. The rebound in investment volume in the second quarter was driven by investment in office properties, where the sale ofOne Bay East - East Tower to Citi for a record breaking HK$5.43 billion was accompanied by another large en bloc sale inWong Chuk Hang (Cheung Kong's project at 41 Heung Yip Road in Aberdeen). Office investment was also highlighted by purchases by end-users and the return of more long-term investors making purchases in Kowloon East and other non-core locations.

Investors have grown accustomed to the cooling measures, leading to stable investment in retail properties. There is a growing focus on non-core properties and emerging areas where upside potential is greater, especially in the midst of slower retail sales growth and easing rents in prime locations. Retail investment in the first half of 2014 was highlighted by the Link Reit's disposal of four small-scale shopping centers and also strata sales of 8 Russell Street in Causeway Bay, which received a positive response from investors due its prestigious location. Sales of prime street shops slowed as the quarter progressed due to low yields and still high prices. Industrial investment also showed greater stability in the first half of 2014. After dropping slightly in 1Q 2014, industrial investment picked up in the second quarter as some pent-up demand was released due to improved investor sentiment. More investors returned to the strata market, while the sector is also seeing more purchases by long-term investors, end-users and those aiming to refurbish or convert the property's use. Capital values of non-residential properties were relatively stable in the first half of 2014, whereas values of office, industrial and retail properties increased by 1% to 2%. Capital value growth was slightly higher in 2Q 2014 as compared to the previous quarter, attributed to the rebound in investor sentiment which has led to firmer asking prices. 

Kent Fong, Executive Director, Investment -- Hong Kong, said, "More investors and owner-occupiers have adapted to the cooling measures and are making purchases for the longer-term. Rents for most properties are stable and interest rates remain low, meanwhile supply of quality assets is limited. Capital values have been resilient to the cooling measures and recent momentum in the residential sector, not to mention some record-breaking purchases in Kowloon East, is boosting investors' confidence."  

Residential sector resilient to cooling measures as sales reach a new high post-DSD; prices are on the rise

As the first half of 2014 came to a close, residential sales reached nearly 6,000 units in June, the highest monthly total since the introduction of Double Stamp Duty (DSD). Sales showed a steady improvement since April and after slight relaxation of DSD in May. Activity increases remained focused on primary properties with developers seeing brisk sales and some launches oversubscribed as they continued to offer discounts, stamp duty rebates and prices close to those of nearby second-hand properties. More recently, improved market sentiment has penetrated the secondary market, whereas more prospective buyers, including first-time purchasers, are targeting mid-priced flats. As a result, secondary homes sales also climbed to its highest level post-DSD in June, having reached 4,585 units. Secondary homes sales increased by 14% in the first half of 2014 as compared to the second half of 2013.

Strong sales in recent months has brought record high prices in some districts, notably in the New Territories. A new house inTsuen Wan West transacted atHK$55,889 per square foot, while a flat at Mayfair by the Sea in Tai Po sold for HK$36,132 per square foot. Luxury residential prices dropped by 2.9% in the first half of 2014, but their decline has softened in recent months on the back of more stable demand. Outweighed by a quiet market in the first half of the second quarter, luxury residential prices dropped by 0.5% in 2Q 2014. Existing owners are still facing little pressure to sizably reduce prices due to their low holding cost and also more limited supply.   

Vincent Cheung, National Director, Valuation & Advisory -- Greater China, said, "Developers will continue to expedite new launches in the second half of this year as the look to cash in on strong buyer sentiment and close the year with strong sales performance. Recently, owners in the secondary market have been more aggressive on asking prices, but buyers' response has been more conservative. Overall home prices have been on the rise in recent months, proving resilient to the government's efforts to cool the market. Strong demand for mid-priced flats will support further price growth of such properties in the second half of this year. Moving up the ladder to those properties priced atHK$10 million and above, I expect prices to be more stable."

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About Cushman & Wakefield

Cushman & Wakefield is the world's largest privately-held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the world's major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and assignments. Founded in 1917, it has 250 offices in 60 countries and more than 16,000 employees.  It offers a complete range of services for all property types, fully-integrated on a global basis, including leasing, sales and acquisitions, debt and equity financing, investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has more than$3.7 billion in assets under management.  A recognized leader in local and global real estate research, the firm publishes its market information and studies online atwww.cushmanwakefield.com/knowledge . InGreater China, Cushman & Wakefield maintains seven market-leading offices inBeijing, Shanghai, Chengdu, Guangzhou, Shenzhen, Hong Kong and Taipei. More information is available atwww.cushmanwakefield.com .

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