Buyer's Stamp Duty home sales see only moderate increase after cooling measures relaxation

HONG KONG, 22 February 2024 – There was only a moderate increase of 16 home sales involving Buyer's Stamp Duty (BSD) between November 2023 and January 2024, after the government relaxed the cooling measures at the end of October last year, according to JLL's latest Residential Market Monitor released today. Combined with the expanding new housing supply and interest rate movement, the housing prices are expected to continue to fall.

Historical analysis suggests that home price stabilisation would require monthly secondary residential transaction volumes to stand firmly above 3,500. However, the secondary monthly transaction volume has remained at or below 3,000 since April 2023. After the government's decision to reduce the BSD and the New Residential Stamp Duty (NRSD) by half, there was a moderate uptick in purchases by non-local buyers and investors. Comparing the periods of Nov 2023-Jan 2024 with Aug-Oct 2023, home sales involving BSD slightly increased to 16transactions only. While the average monthly transaction volume involving NRSD in these two periods rose from 97 to 274, it is still below the monthly average of 312 in 2021.

Another indicator is the interest rate movement. Due to the elevated mortgage rate, the persistent 2% negative carry for overall residential properties is expected to dampen demand from investors and end-users. The current one-month HIBOR stands at approximately 4.5%, with the uncapped mortgage rate for HIBOR-based mortgages (H+1.3%) at about 5.8%. Even for a modest mortgage rate reduction of 30 basis points (bps) from the total 260 bps increase in the latest rate hike cycle, HIBOR would need to drop by nearly 200 bps from its current level. In that case, the Fed fund rate would need to drop by 200 bps, assuming that the prime rate remains unchanged and HIBOR moves in line with the base rate. However, according to Reuters, Fed funds futures now show roughly 115 bps worth of reduction priced in this year, down from about 150 bps at the end of last year. Meanwhile, the US core Consumer Price Index rose by 0.4% m-o-m in January, surpassing expectations and marking the highest increase in eight months. This figure lowers the chances of the Fed reducing interest rates in the first half of 2024.

Also, most developers are expected to offer deeper price discounts on primary home sales as supply accumulates. The available private residential units in the primary market rose from 86,300 in 3Q23 to 91,300 in 4Q23. In particular, the unsold units of completed stock rose by 2,000 to 20,300, and the unsold units under construction rose by 3,000 to 71,000.

Norry Lee, Senior Director of Projects Strategy and Consultancy Department at JLL in Hong Kong, said: "The partial relaxation of cooling measures has not supported home prices, with the overall price index continuing to fall by 3.3% accumulatively in Nov and Dec 2023. We do not anticipate a drastic turnaround in market sentiment at least in 1H24, particularly due to weak stock market performance, geopolitical uncertainties, and mainland China's economic growth outlook. The government should contemplate the full removal of remaining cooling measures in the residential market."

Cathie Chung, Senior Director of Research at JLL in Hong Kong, said: "The government should also study other measures, such as mortgage relaxation and easing capital outflow controls for eligible mainland talents, similar to the facilitation measures for Hong Kong and Macau residents when buying property in the Greater Bay Area. With over 80,000 talents already arriving in the city, how to meet these rapidly increasing housing needs will become a challenge. After all, high housing rents could be as detrimental to residents' livelihoods as elevated home prices."