China and Hong Kong Residential Markets. June 2014 Press Conference by Knight Frank

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1 China and Hong Kong Residential Markets June 2014 Press Conference by Knight Frank

2 China residential Presented by David Ji, Director and Head of Research & Consultancy, Greater China

3 GDP and income growth slowdown affects residential market 25% Growth of China s GDP and Household Income GDP growth Income growth 20% 15% 10% 5% 0% Source: CEIC / IMF/ Knight Frank 3

4 Overall House price continued slowing down under policy effect 12% Change in average prices for new homes in 70 Chinese cities 8% 4% 0% % Year on year Month on month Source: National Bureau of Statistics / Knight Frank 4

5 Although Luxury prices is still rising thanks to shortage Q = Luxury residential price indices in major cities Beijing Hong Kong Shanghai Guangzhou Source: Knight Frank 5

6 housing sales also saw large decline RMB (million) Housing sales by value Y-o-y growth Growth (%) 2,000,000 1,750,000 1,500,000 1,250,000 1,000, , , ,000 - (250,000) (500,000) (750,000) The first four months of 2014 saw a y-o-y 10% nationwide drop in housing sales value % 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% Source: National Bureau of Statistics / Knight Frank 6

7 residential starts developers also took a hit Floor space First half Second half 1,600 1,400 1,200 In the first four months of 2014, construction starts for housing fell 25% year on year. 1, Source: National Bureau of Statistics / Knight Frank 7

8 Meanwhile, much Time will be needed to absorb inventory in some major cities No. of months 25 Assume average sales volume in 2013 continues Source: Knight Frank 8

9 Residential sales decline also affects developers share performance SSE Composite index 3,500 3,000 2,500 2,000 1,500 1,000 Shanghai residential price index VS SSE index SSE Composite index Shanghai home price index Home price index (Dec 09 = 100) Source: Knight Frank / Shanghai Stock Exchange 9

10 Price cut cases in China residential market Shanghai Beijing Project type Mass residential Mass residential Location Sub-urban Sub-urban First phase launch price Second phase launch price Price cut from the first phase Source: Knight Frank RMB25,000 per sqm (3Q 2013) RMB22,000 per sqm (2Q 2014) RMB21,000 per sqm (4Q 2013) RMB17,000 per sqm (2Q 2014) 12% 19% 10

11 China property market Forecast - Downbeat across the board City / sector Urban districts Sub-urban districts H H forecast 2014 full year forecast 2014 full year forecast First-tier cities Second-tier cities Luxury 3% 3-5% 6-8% Mass 2% 1-3% 3-5% Luxury 2% 1-3% 3-5% Mass 1% 0-1% 1-2% 5-10% 10-15% Source: Knight Frank 11

12 Hong Kong residential Presented by Thomas Lam, Senior Director and Head of Valuation & Consultancy

13 Global Prime residential prices Monaco Hong Kong London Singapore Geneva Taipei New York Moscow Sydney Paris Shanghai Beijing Rome Miami Los Angeles Tokyo Mumbai Istanbul Sao Paulo Dubai Cape Town HK$36,000 per sq ft 0 10,000 20,000 30,000 40,000 50,000 60,000 HK$ per sq ft Source: Knight Frank 13

14 Hong Kong Residential sales and prices No. of transactions 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Residential sales transactions 2003 SARS 2008 Global Financial Tsunami Residential price 2011 June HKMA further mortgage tightening 2010 Nov SSD 2013 Feb DSD + Lower LTV 2012 Oct BSD Price index (1999 = 100) 2013 Apr First-hand Sales Ordinance Source: Rating and Valuation Department / Knight Frank 14

15 Primary & secondary residential sales No of transactions 140,000 Primary 135,778 Secondary 160% 120, , % 100,000 80,000 95,931 84,462 81, % 100% 60,000 50,676 50,000 88% 86% 90% 87% 40,000 84% 78% 20,000 73% 12% 14% 10% 13% 16% 22% 0 27% Source: Land Registry 80% 60% 40% 20% 0% 15

16 Share of Mainland buyers in HK luxury residential market 50% 40% Share of Mainland buyers of Hong Kong private residential units worth HK$12 million or above Share of overall sales consideration Share of overall sales volume 30% 20% 10% 0% 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H* * Estimation Source: Public sources / Knight Frank 16

17 Share of company buyers in HK private residential market 35% Share of overall sales volume Share of overall sales consideration 30% 25% 20% 15% 10% 5% 0% 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H* * Estimation Source: Public sources / Knight Frank 17

18 Completion of residential units in Hong Kong No. of units 40,000 35, average completion = 24, average completion = 27,600 30,000 25,000 20,000 15, average take-up =20, average completion = 11, estimated average completion = 19,500 10,000 5,000 0 Source: Rating and Valuation Department / Knight Frank 18

19 Potential Residential supply in 2H 2014 Yuen Long 1,200 (9%) New Territories 10,900 (75%) Tai Po 2,400 (17%) Kowloon 2,200 (15%) Tung Chung 1,400 (10%) Source: Market news / Knight Frank Hong Kong Island 1,500 (10%) Tseung Kwan O 2,900 (20%) Total: 14,600 19

20 General affordability in Hong Kong Home price (HK$ million) Average Home Price Affordability Ratio Affordability ratio Source: Rating and Valuation Department / Knight Frank 20

21 A case study on affordability: Taikoo Shing Taikoo Shing (unit size = 490 sq ft) Year * Monthly household income (HK$) Prime-based mortgage rate Average unit price (HK$ per sq ft) $6,550 $22,300 $25,000 $30,000 $30, % 9.2% 3.0% 2.5% 2.5% $1,150 $9,000 $8,000 $13,000 $12,800 Total flat price (HK$) $560,000 $4,400,000 $3,900,000 $6,400,000 $6,300,000 p360% compared with 1987 p1,000% compared with 1987 Down-payment (HK$) $169,000 $1,320,000 $1,170,000 $1,920,000 $1,890,000 Down-payment as years of annual income Monthly payment (HK$) 2.2 years 4.9 years 3.9 years 5.3 years 5.2 years $2,800 $25,200 $11,500 $17,700 $17,400 Affordability ratio 43% 113% 46% 59% 57% Assumptions: down-payment ratio = 30%; payback period = 20 years Source: CEIC / EPRC / Knight Frank 21

22 A case study on affordability: City One Shatin City One Shatin (unit size = 310 sq ft) Year Monthly household Income (HK$) Prime-based mortgage rate Average unit price (HK$ per sq ft) $6,550 $22,275 $25,000 $30,000 $30, % 9.2% 3.0% 2.5% 2.5% $1,250 $6,900 $5,100 $10,100 $10,600 Total flat price (HK$) $388,000 $2,100,000 $1,600,000 $3,100,000 $3,300,000 p360% compared with 1987 p750% compared with 1987 Down-payment (HK$) $116,000 $630,000 $480,000 $930,000 $990,000 Down-payment as years of annual income Monthly payment (HK$) 1.5 years 2.4 years 1.6 years 2.6 years 2.7 years $1,970 $12,000 $4,700 $8,600 $9,100 Affordability ratio 30% 54% 19% 29% 30% Assumptions: down-payment ratio = 30%; payback period = 20 years Source: CEIC / EPRC / Knight Frank 22

23 Hong Kong residential Market Forecasts Sector H H forecast 2014 full year forecast Luxury residential price 1% 3-5% 5% Mass residential price 0.2% 5% 5% Source: Knight Frank 23

24 Hong kong retail

25 Hong Kong inbound tourist arrivals No. of visitors (Million) Visitor spending per capita Chinese Mainland China (Same day) Mainland China (Overnight) Other Regions Other regions Overnight visitor HK$8,937 HK$6,500 Same-day visitor HK$2,721 HK$738 25% 75% 10-50% 50% Source: Hong Kong Tourism Board / Knight Frank 25

26 Individual visitor scheme (IVS) visitors & HK retail market Visitor arrivals/ retail sales 600,000 IVS visitors (00') Retail rental index Retail sales (HK$ million) Fast-growing Retail rental index (2003=100) ,000 period , % +15% , % % 200, , % +30% +20% +29% +12% +10% +34% +29% F 2015F 50 Source: Hong Kong Tourism Board / Knight Frank Note: IVS started in July

27 Q & A