Hong Kong Property:Record high of 83,000 units of supply in next 3-4 years

83,000 units available in the next 3-4 years, reached historical peak.

    According to the latest data on private housing supply released by theTransport and Housing Bureau of Hong Kong, a total of 5,000 units havecommenced construction in 2Q15, up 195% QoQ and 37.2% YoY. The totalnumber of units completed in 2Q15 jumped 366% QoQ and down 8.69% YoYto 4,200 units. In 1H15, number of units which construction commenced hasamounted to 7,900 units, dropped 35.77% YoY with units completed in 1H15dropped 32% YoY to 5,100 units.

    As of end-June 2015, a total of 5,000 units have been completed but unsoldand there are 63,000 units under construction, deducting the 9,000 units soldby pre-sale, there are 54,000 units under construction but not yet sold or notyet started for sale. Adding the 24,000 units from disposed sites whereconstruction may start anytime, a sum of 83,000 units will be available in thecoming 3-4 years. The number increased by 5,000 units from the 1Q15 data,and is the record high since the series initiated since Sep 2004.

    Price pressure from increasing in supply and potential interest rate hike.

    Primary market transaction has been taking up market share from thesecondary market given that many of the new launches are offering prices atdiscount to that in the second market, as well as the active launching by thedevelopers. As a reference, data from Land Registry primary transactionvolume accounted for about 27% of the total transaction volume in HK, upfrom the 25% in 2014 and 21% in 2013. However, with the increasing supplyin the next few years, as well as the potential interest rate hike led by the USFederal Reserve, we think there will be downward pressure on the pricing inthe primary market in Hong Kong.