Hong Kong Residential Market: 1st & 2nd hand are NOT a Pair

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

May 2007

Intuitively, many people are likely to expect the 1st (real estate developer to buyer) and 2nd hand (private owner to buyer) residential market sectors to show some form of relationship, price-wise, volume-wise, and the like. However, this does not seem to be the case based on recent (May 2005 to March 2007) market information obtained from www.centanet.com (website of Centaline Agency). Here are some of the highlights

A)     Average prices of 1st and 2nd hand residential properties do NOT synch with one another = the R is a negative 0.29 while the R2 is 0.08, not indicating any significant correlation between the two sectors. If anything, they tend to go in opposite directions. However, this alone does NOT necessarily imply there is no relationship at all. One reason is that it is very difficult to pinpoint what the .typical・ property is for the 1st hand sector, as developers collectively could be skewed toward selling larger and more expensive luxury residences one month, and then turning to sell smaller and more ordinary home units the next. Also, the smaller transaction volume in the 1st hand sector means such a .typical・ property could vary from month to month tremendously as larger unit sales one month would push the average price upwards and smaller unit sales the next would do the reverse, thus causing the much larger fluctuations in its average price during the period observed. On the other hand, the 2nd hand sector not only has much higher transaction volumes, but also more stable average price changes, as the .typical・ 2nd hand home unit is likely to vary less from month to month, generally being a 650 ft2 high rise unit with 2 bedrooms. In short, IF one sticks to a certain grade and size of 1st hand units and compare its average prices with those of comparable 2nd hand units, one may find there is indeed some correlation in their respective price trends. Put in another way, the 1st hand average prices may NOT be suitable for gauging real price changes.


B)     Transactions between 1st and 2nd hand residential properties show little correlation too = while it is sometimes thought that a 1st hand purchase would mean a 2nd hand sale later as the buyer would need to dispose his or her former property to acquire the new purchase, and vice versa, the figures do not appear to support this notion. The R is 0.38 and the R2 is 0.14, a bit of relationship but not much to boast about. Speculatively, it may mean the 1st hand buyers are either buying their first homes or investors-speculators i.e. they do not intend or need to move into the new units. Alternatively, they may decide to keep their former units for investment, or for that matter, the 2nd hand sellers decide to rent after disposing of their former units. Whichever way and whatever the reason, transaction volumes between the two do not appear to go hand in hand. We have also calculated the transaction volume changes (+ or - %), one with synchronized timing and one with a 3-month lag between the 1st and 2nd hand sectors, and found no significant correlations there too. Overall, the 1st hand sector transaction is on average only around 23% of the 2nd hand sector volume.


C)     Average price and transaction volume do not show much relationship either within the 1st or 2nd hand sectors = one may be inclined to think the higher the price, the more the transactions owing to hectic demand etc. Not so based on the figures. The R2 for the 1st hand sector is 0.01 while the one for the 2nd hand sector is 0.07, indicating practically no or little relationship.


D)     Some relationship between the 2nd hand average prices and rental rates = The R is 0.67 while the R2 is 0.45, indicating some correlation. The rental yield generally ranges within 3% to 4% during the period observed. 

For further details on the above, please refer to the table and charts below. Essentially, the 1st hand sector is more volatile in both price and transaction volume terms than the 2nd hand sector. The most stable appears to be the rental rates.  



1st hand

2nd hand


1st hand deals

2nd hand deals















Max / Min














Standard Deviation






Standard Deviation / Mean










In summary, given the above circumstances, interested parties and market participants may wish to observe the 2nd hand residential sector more for gauging price changes and transaction trends with 1st hand sector information as supplement.

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.                                

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