In the doldrums
No end in sight for property sector’s woes
Despite repeated calls by the Hong Kong real estate sector for the scrapping of measures introduced by the government to battle rising property prices – which the sector says have practically frozen the market and is putting pressure on jobs – the administration looks unlikely to reverse its actions.
On several occasions, Chief Executive Leung Chun-ying has reiterated that there are no plans to relax the cooling measures while there is still the risk of a real estate market bubble.
Introduced in February, the three cooling measures consist of a special stamp duty imposed on the resale of flats within 36 months; a doubling of the stamp duty on all buyers of residential and non-residential properties, except Hong Kong permanent residents who don’t already own a property; and a 15 per cent buyer’s stamp duty levied on foreign and corporate buyers of residential apartments.
In July, thousands of Hong Kong real estate agents and property-industry workers took to the streets to call on the government to lift the measures, which they say are costing jobs. The city’s only listed real estate agency, Midland Holdings, said at the time that up to a third of Hong Kong’s property agents could lose their jobs over the following 12 months if the measures remained in place. Current government figures show that Hong Kong has more than 37,000 individual real estate agents and salesperson-licence holders.
Thomas Lam, director and head of research and consultancy for Greater China at Knight Frank, says the industry is facing a serious challenge. “The property sector is used to weathering cycles, but the government cooling policies have caused transaction stagnation in the property market,” he says.
According to figures from Phillips Securities, the combined residential property sales of Hong Kong’s four major developers – Sun Hung Kai Properties, Cheung Kong, Henderson Land Development and New World Development – fell by nearly 40 per cent during the first half of the year.
Lam says previous cooling measures pushed investors and speculators from residential properties to non-residential properties, such as commercial properties and hotels. The current cooling measures, however, are affecting both markets.
“Residential transactions have dropped by between 30 and 40 per cent, which is having a big impact on the confidence in the property sector. People in our industry are not too concerned about property-market fluctuations and cycles, but when transactions are brought to a standstill, they really start to worry,” says Lam, who believes the cooling measures will stay in place for some time.
Joseph Tsang, managing director and head of capital markets for Hong Kong at Jones Lang LaSalle, says that while morale in the property sector is low, the knock-on effects of the cooling measures are having an impact on other industries as well. “Property agents, particularly those that operate in the secondary market, are feeling the pinch, but the funky measures introduced by the government are also affecting others,” he says.
He explains that those affected include bankers who deal in mortgages, interiors designers and fit-out professionals, and lawyers who work closely with the property sector. “Many agents feel they are like lame ducks, with very few options open to them. The situation is definitely affecting job security and future planning because agents are worried about their income,” he says.
He adds that a stagnant property market also affects the psychological well-being of home owners. “Even if home owners are not intending to sell, knowing that the market is almost frozen has an impact on the way they feel,” he says.
Amid the market blues, Keith Chang, managing director of Savills Realty, says the launch of its Savills Associates initiative in Hong Kong this year aims to boost revenue streams by partnering with licensed salespeople outside the firm, regardless of their profession. “The system allows an ‘associate’ to continue to work in his or her existing job while also selling property for Savills,” he says.
Associates – essentially freelance agents – are paid a 50 per cent commission on deals they broker, compared with an in-house rate of 20 per cent. The incentive is based on the successful Singapore model introduced four years ago, which now has about 4,000 associates.
“In Hong Kong’s thin transaction market, our associate models offer new income-stream opportunities,” Chang says.