HK Property:HK residential supply would rise to 480,000 units in coming 10 years

Professor Anthony Cheung Bing-leung, the Secretary of Transport and Housing Bureau, announced the Hong Kong ‘Long Term Housing Strategy’ in a media release this afternoon. He expressed that the total residential supply, including public housing, home-ownership scheme and private housing, would rise to 480,000 units in coming 10 years starting from 2015, implying the increase of 10,000 units from 470,000 units according to the prior year estimation. Moreover, the new supply for additional 1,000 units per year in average will all allocate to public housing.

    Public-private housing ratio remained in 60% to 40% basis

    Professor Cheung reaffirmed that the public-private housing ratio will remain in 60% to 40% basis. Meanwhile, Transport and Housing Bureau estimated the supply for public housing would be 290,000 units in total, which consisted of 200,000 units of public rental housing and 90,000 units of home-ownership scheme. On the other hand, private housing stood at 190,000 units in coming 10 years. Professor Cheung addressed that HK government may also involve private developers for the construction of home-ownership scheme projects in order to speed up the supply.

    Primary market supply stands at 74,000 units in coming 3-4 years

    Transport and Housing Bureau also added that the total supply in primary market stands at 74,000 units in coming 3-4 years, which represents an average of 21,142 units per year. Meanwhile, Professor Cheung added that there are three key strategies for long term housing supply in HK. First, HK government will actively increase the supply of public housing. Second, they will also boost up the supply for home-ownership scheme projects. Finally, HK government will ensure stable and continuous land supply through change of land site usage to residential purpose and actively search for more suitable land site in HK in coming years.

    A more challenging 2015

    Overall, we are more concerned about the outlook for the HK commercial property markets in light of the expectations for a soft economy ahead. We anticipate a more imminent and sizeable correction in the prime retail and office markets as compared to the residential market. We prefer developers over landlords given their residential exposure with higher asset turnover and more stable IP portfolios. Our top picks are SHKP and Cheung Kong for higher asset turnover, Sino Land for NAV growth via well-timed land acquisitions, and Henderson Land for its high defensiveness with a stable growth profile. We retain our Sell on the prime landlords Hongkong Land, Great Eagle, and Hysan. Our TPs are based on discount to NAV. Key risk: external shocks, unexpected economic and policy volatility.