LI, Tao @ Hong Kong

As negative factors, including a sagging economy, rising mortgage rates, increasing land supply and tightening government measures are in play, Hong Kong’s property market is likely to be grim in 2012, agencies and analysts believe.

Property consulting firm DTZ on Tuesday forecast the city’s mass flat prices will drop by around 5 to 10 percent this year while luxury homes will face a correction limited to below 5 percent due to the purchasing powers of the rich.

“The slow market was apparently due to the global economic downturn, which resulted in buyers remaining cautious even though the unemployment rate was low and the local economy was buoyant,” Alva To, DTZ’s head of consulting, said during a media briefing on Tuesday.

Unlike the robust 2010 which saw booming residential transactions, the city’s property sales were subdued since the beginning of 2011, with home transactions in the first half of 2011 declining by around 8.6 percent to 71,868, from 78,649 in the same period a year earlier, data provided by DTZ shows.

After home prices started retreating in mid-2011, the government’s anti-speculation measures, particularly the special stamp duty (SSD) which capped short-term reselling showing effect, the transaction numbers further slumped to only 39,702 in the second half last year, representing a 54.3 percent decrease from 2010.

To said he expects the existing borrowing costs and the increased interest spread to continue in the short term. Potential home buyers may continue to wait for possible downward adjustment particularly when property prices had risen by a steep margin last year — pushing the city’s average affordability ratio 24 percentage points higher over 2010.

Yannis Kuo, a property analyst from Daiwa Securities Capital Markets Co, also estimates that average home prices will continue its downward trend this year, given that the decline in 2011 had only achieved half of the estimated target.

“We forecasted that prices will tumble around 10 percent from the peak,” Kuo told China Daily. “As home prices only declined about 5 percent in 2011, we believe the descending momentum will continue in 2012 but do not expect a great correction,” she added.

But a number of property outlook reports released last month expect an even bigger market adjustment. Standard Chartered Plc on Dec 13 indicated that Hong Kong home prices may need to fall as much as 10 percent in 2012 before buyers are lured back. Knight Frank in mid-December said the city’s home prices are set to fall by 10 to 15 percent in 2012.

But none of these is as pessimistic as Barclays Capital Asia, which expects Hong Kong’s residential market to slump 25 to 30 percent, head of its property sector research Andrew Lawrence said on Dec 19.

Developers are holding a similar but more positive view. Henry Cheng, managing director of New World Development Co is convinced that the prices glissade will be limited within 10 percent as the Hong Kong government is regulating the supply and demand through the land supply in a bid to avoid large market fluctuations.

“I believe the government is striving to achieve long-term healthy and stable development of the property market.” Cheng said.

According to the city’s largest real estate broker Centaline, home prices in Hong Kong gained more than 70 percent since early 2009 and peaked in June 2011, surpassing the previous high in 1997.

It, nevertheless, started declining afterwards, as the multiple government measures took effect and gloomier economic outlook for the year stymied investors’ appetite for the market.

The government’s vow to maintain a relatively fast pace of increasing land supply in Hong Kong also contributed to stabilize the city’s home prices last year. Adding the ongoing and upcoming land tenders, the government has sold 22 pieces of land during the first three quarters of this fiscal year which will end on March 31, 2012. The land is estimated to provide 7,400 units of residential flats.

Together with the estimated 14,000 units from the railway-linked property projects, the city has already provided more than 20,000 units this year — a target to ensure the annual supply of 20,000 apartments set by Chief Executive Donald Tsang during his Policy Address in October 2010 is reached.

The Hong Kong government nowadays is more flexible in operating the market through the effective adjustment of the land supply pace, according to Daiwa’s Kuo, who added that the government is also less willing to witness property prices slump in Hong Kong as opposed to skyrocketing prices.

“Property is the major asset that Hong Kong people own. For the sake of the society’s stability, the government is not willing to see a substantial devaluation of homes’ values in the city,” said Kuo.

Vincent Cheung, Cushman & Wakefield’s national director for valuation and advisory services, told China Daily that Hong Kong people these days are more mature in coping with market fluctuation after several previous collapses.

“As long as Hong Kong’s unemployment rate remains high while interest rate stands at current low level, most people in Hong Kong will hardly hurry to axe prices to sell homes as they’ve seen the market’s ups and downs,” said Cheung.

“But transaction volume in Hong Kong will stay low in 2012 due to the prices deadlock, which, will at the most decline by 15 percent in the mass market,” Cheung added.

litao@chinadailyhk.com
http://www.chinadailyapac.com/article/property-market-face-grim-year