20141103-法国巴黎银行-Mid-end_new_launches_still_shine_43页_791kb

Mid-end New Launches Still Shine Summary

Core Content

This report provides an analysis of the Hong Kong residential property market, focusing on the impact of the Special Stamp Duty (SSD), rental trends, and developer performance in 2014 and 2015. It highlights that the mid-end segment is expected to benefit from the SSD policy changes and the continued preference of end users to buy rather than rent, driven by rental growth and low mortgage rates.

Main Points

• SSD Impact:

  • The holding period for SSD was extended from 24 months to 36 months in late 2012.
  • This extension will result in a significant increase in the number of units frozen by SSD, from 104,000 in November 2014 to 164,000 in November 2015, which is about 14% of the total private residential units.
  • The increased SSD rates are expected to limit secondary market choices and support primary market sales, particularly in the mid-end segment.

• Primary Market Trends:

  • Primary residential sales have shown strong performance, with a 12% increase in volume forecast for 2014 to 16,000 units.
  • The total transaction value is expected to reach a record high of HKD170 billion in 2014, up 84% year-on-year.
  • The primary volume is expected to be maintained in 2015.

• Secondary Market Trends:

  • Secondary units from the 10 major estates available for sale fell 29% YTD to a new low.
  • This decline supported a property price rise of 8.7% YTD.
  • The situation is expected to worsen in 2015 due to the stronger impact of SSD.

• Rental Growth:

  • Mid-end and mass segment rentals are on a rising trend, with a YTD growth of 9.6%.
  • The record-low vacancy rate of small to medium-size units supports this growth.
  • Rental increases are expected to offset potential mortgage payment hikes, keeping the "buy vs. rent" decision in favor of buying.

• Developer Recommendations:

  • BUY: Wheelock, Sino Land, Cheung Kong, SHKP
  • These developers are expected to benefit from the mid-end segment's strong sell-through rates due to their higher proportion of saleable resources with average unit prices below HKD10 million.
  • Developers with low gearing, such as Sino Land and Cheung Kong, are preferred as they may benefit from potential NAV-accretive acquisitions from MTRC and URA.

Key Information

• SSD Impact Timeline:

  • Units acquired after late Oct-12 will be locked by SSD for an additional year until late Oct-15.
  • The SSD rates for units acquired between 20-Nov-10 and 26-Oct-12 were adjusted from 15% to 20% for holding periods of up to 36 months.

• Valuation Comparison (FY15E):

• Mortgage Trends:

  • Liquidity in Hong Kong has supported low mortgage rates, with an average rate of 1.95% in September 2014.
  • Banks are offering aggressive Hibor-based mortgage plans, which have attracted 81.9% of buyers in September 2014.
  • A potential mortgage rate hike of less than 50 bps is expected, but rental growth is anticipated to offset this increase.

• "Buy vs. Rent" Analysis:

  • For units like Whampoa Garden and Mei Foo Sun Chuen, the difference between mortgage payments and rentals is minimal or negative, favoring buying.
  • Even with a 50 bps rate hike, rental growth is expected to keep the "buy vs. rent" decision in favor of buying.

• Supply Forecasts (2014-2018):

  • Annual private housing supply is forecasted to remain around 15,000 units, matching fundamental demand.
  • The Development Bureau's supply forecasts have historically been overestimated, with actual completions falling short by 27% in 2011-14.

• Subsidized Housing:

  • The first batch of 2,160 units under the Home Ownership Scheme (HOS) is expected to be completed by 1Q17.
  • These units are likely to be allocated to public housing tenants (60%) and private housing tenants (40%).

Conclusion

The report remains positive on the HK residential market in 2015, citing strong fundamental demand, limited secondary market supply due to SSD, and continued rental growth as key factors. It recommends investing in mid-end developers such as Wheelock, Sino Land, Cheung Kong, and SHKP, due to their favorable position in the market.