Recent mortgage tightening measures targeting borrowers of multiple loans and increasing borrowing rates have failed to dampened demand in Hong Kong’s red-hot housing market. Residential sales volumes are on the rise and prices are back at record-high levels.

One of most notable indicators reflecting the current optimism in the market is the Register of Intent (“ROI”) figures. In Hong Kong, an ROI is an application from a buyer who is interested in buying a unit in a new residential project.

Cheung Kong’s “Ocean Pride” in Tsuen Wan, which was recently launched, received about 14,500 ROIs against a first batch release of 496 units, or 29 times oversubscribed.

Meanwhile, “Victoria Skye” in Kai Tak, developed by K&K Property, and “Novum West” in the Western District, developed by Henderson Land, received 4,800 ROIs and 4,500 ROIs, respectively; each oversubscribed by 16-17 times.

Notes: Cut-off date 6th June 2017; includes units from previous batches sold on the same day
Source: Market Sources, JLL

Looking at the oversubscription rates above, it would appear that there is a severe shortage of supply in the market. However, one should not solely rely on ROI and subscription figures to gauge the level of interest in the market.

In many instances, ROI figures are inflated by the mechanisms of registration unique to the sales arrangements of each development. Developers can manipulate the conditions for registration and elevate the number of ROIs as one of their marketing strategies, given the lack of restrictions on the registration process in the primary sales market.

The most basic rule allows for each ROI registrant, whether under a single name or joint name, to submit a single ROI per launch. This is most commonly applied in the primary luxury residential market. In this case, a single ROI could be interpreted as demand for a unique individual. However, for some mass residential projects, a registrant may be able to submit up to two ROIs to increase their chances in the balloting process.

For developers who are eager to inflate ROI numbers for marketing purpose, they are likely to adopt either combination or nomination registration methods, with no limitations on duplicated names. Under such a scenario, a family of four can submit up to 16 ROIs, which suggests that the total ROI figure for a project could have been inflated by 16 times!

Number of ROIs can be submitted per each family of four
Notes: Assuming all members in the family are eligible for the registration
*Registrant whether under single name or joint names
Source: Developers, JLL

Still, that’s not to say that the buying frenzy in the market has been fabricated. Assuming each registrant submitted 2 ROIs for the Cheung Kong project, there were still about 7,000 homebuyers interested in the first batch of 496 units launched.

From a buyer’s perspective, the Hong Kong residential sales market remains supply-driven. With few choices in the market, a lack of incentive to buy in the secondary sales market and strong pent-up demand, newly launched flats continue to be gobbled up quickly.

Against such a backdrop, capital values are expected to grow 10-15 per cent for the full year in 2017, even under the tightened mortgage rules and anticipation of increasing mortgage rates.

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