This photo shows a view of residential buildings in Hong Kong on May 7, 2018. (ANTHONY WALLACE / AFP)

Real estate analysts on Wednesday concurred that a low interest rate environment and likely shortfall of private residential units in Hong Kong over the near- to medium-term will lend support to a 3-5 percent increase in residential flat prices in 2021.

The mass residential market performed well last year as the government relaxed the loan-to-value ratio for property mortgage loans. On the other hand, the luxury market lagged behind, because the pandemic-related border closure has blocked mainland buyers from making transactions here, according to DBS Hong Kong, the local banking arm of DBS Group Holdings in Singapore.

“While the continued low interest rate environment bolsters the holding power of homeowners, tight residential flat supply also supports the residential property market,” the bank said during a virtual press briefing, noting that Hong Kong home prices could fluctuate up and down by as much as 5 percent this year.

The 2021-22 Land Sale Programme includes 15 residential government sites with the capacity to provide about 6,000 private units, the lowest estimated annual supply since at least 2011. For the full year, potential land supply is expected to yield 16,500 private units, 5 percent more from a year ago.

Most of the residential sites on the (2021-22 Land Sale) program are for low-density development. The land supply for mass residential will rely on the MTR projects. The lack of land supply for mass residential development will continue through the next two to three years, providing support for housing prices in urban areas.

Dorothy Chow, senior director of valuation advisory services at Jones Lang LaSalle in Hong Kong

In addition, private housing supply is expected to increase at a much slower pace by about 5 percent to an average of over 18,000 units annually in the next five years. 

“The new land sale program reflects the government’s difficulties to generate new land supply,” cautioned Dorothy Chow, senior director of valuation advisory services at Jones Lang LaSalle in Hong Kong. “Most of the residential sites on the program are for low-density development. The land supply for mass residential will rely on the MTR projects. The lack of land supply for mass residential development will continue through the next two to three years, providing support for housing prices in urban areas,.”

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Last year, housing construction plunged over 36 percent to 11,800 units annually, the lowest since 2011, according to Transport and Housing Bureau data.

“We hold onto our view that residential property prices may grow by up to 5 percent in 2021, especially if the border re-opening and economic recovery help to release pent-up demand in particular from mainland investors,” OCBC Wing Hang Bank Economist Carie Li Ruofan said. “Small- to medium- homes and the luxury home market may see a stronger rebound than the medium-to-large housing market.”

Charles Chan, managing director of Savills Valuation and Professional Services, added: “We expect land supply for private residences will become increasingly limited against the government's increasing focus on public housing. In view of this, we believe developers looking to increase their land bank will increasingly turn to acquiring lands through compulsory sale, or pay a land premium to convert the usage of a non-domestic site to residential usage.”

In December 2018, the government announced that the allocation of land supply for public housing would increase to 70 percent from 60 percent.

The city’s home prices, as tracked by the housing price index of the Rating and Valuation Department, were down 0.47 percent in 2020 from a year ago. 

In February this year, the volume of residential building unit transactions jumped 71.5 percent annually to 6,125 deals with a combined value of HK$56.9 billion (US$7.29 billion), a hike of 87 percent from the same period of 2020, according to Land Registry data.

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The government is also considering rezoning five commercial sites in Kowloon East for residential use, which could yield a total of 5,800 private housing units. According to media reports, all these sites are located within the Kai Tak Development Area and three of them were previously tendered unsuccessfully.