Sustainable local housing demand
? The high sell-through rates of 79-95% in recent primary project launches with
stable ASP suggest strong local genuine housing demand in HK.
? We estimate c.3,100 flats from brand new projects to be launched in Jun-Jul
22; flats that cater to new households should gain market’s favour.
? HIBOR-based mortgage rates should remain low through 2022F, which
should support primary sales and bode well for developers’ share price.
? We retain our positive view on developers. SHKP, HLD and NWD are our
preferred names for their strong sales pipelines and huge farmland reserve.
Recent new launches achieve high sell-through rates
Over the past few weeks, we have seen primary projects (e.g. Grand Mayfair, The
Harmonie, 10 LaSalle, La Salle Residence) achieving high sell-through rates of 79-95%.
This is due to 1) the strong pent-up demand from homebuyers who stayed on the
sidelines around the peak of the fifth wave of Covid-19 outbreak, and 2) the developers’
unaggressive pricing of the flats pre-sold. In a nutshell, the ASP of the recent new
launches is close to the latest ASP of their nearby secondary projects, an indication that
developers price their flats conservatively in order to boost sales.
Small- to medium-sized flats should continue to gain buyers’ favour
In order to make up for the loss of primary sales in 1Q22 due to Covid-19 outbreak,
developers will continue to price their primary flats conservatively, in our view. We
estimate c.3,100 flats from projects not yet launched to be added to the primary market in
the next two months. Projects with mostly small- to medium-sized flats should continue to
gain new households’ favour and should achieve high sell-through rates on the back of
lower downpayment requirements by banks.
HIBOR low enough to sustain primary sales through end-2022F
The 1-month HIBOR has barely moved since our last report on HK property dated 16
May 2022, with the spread of 1-month LIBOR over 1-month HIBOR widened to 0.88%. As
the Hong Kong Monetary Authority’s Aggregate Balance stayed high at HK$320bn (as of
7 Jun), we think it would take several months more for a meaningful increase in 1-month
HIBOR and a hike in the HK$ Prime Rate. While we keep our end-2022F HIBOR-based
mortgage rate forecast at 2.56%, the low benchmark rates for mortgage loans should
continue to drive primary sales in HK in the next several months, in our view.
Reiterate sector Neutral, preferred developers: SHKP, HLD & NWD
We reiterate our sector Neutral rating on HK property but remain positive on developers
(trading at par to 5-year average discount to NAV of 52%). We prefer SHKP, HLD and
NWD among the developers for their strong primary launch pipelines in 2022F and their
huge potential saleable resources that could be converted from farmland land reserve in
the New Territories. Key downside risks for the sector: prolonged Covid-19 outbreak in
HK, prolonged closure of HK borders and decrease in secondary home prices.
Reopening of HK’s borders is a key upside risk for the sector.
