Is the correction in Hong Kong's home prices over? More than half of market observers think so

By Pearl Liu and Lam Ka-sing; / | April 1, 2019 6:37 PM SGT
Thirteen out of the 23 respondents including developers, lawyers, economists and veteran investors interviewed between March 22 and 25, said they expect prices of new homes to rise by up to 15 per cent on the back of pent-up demand. The rest however expect prices to fall further by as much as 5 per cent because of the uncertain global economic outlook.
The survey results show why Hong Kong's Chief Executive Carrie Lam Cheng Yuet-ngor felt compelled to warn about the spectre of rising home prices last week, as affordability was one of the priorities of her administration.
Hong Kong's home prices rose in January, after a 28-month bull month stumbled last August. Since then, property analysts have been divided as to the direction of the prices. DBS said prices will fall by 10 per cent, while Citibank said prices will rise by 10 per cent.
"Unless we have another economic shock, prices are going to go up by 15 per cent before the end of this year," said Nicole Wang, regional head of property research at CLSA.
Meanwhile, the familiar sight of prospective buyers queuing up at new home sales centres has returned. On March 23, buyers snapped up 82 per cent of 607 units that went on sale in four different projects in the biggest weekend launch of the year.
"They have been waiting for a very long time, and cannot wait any longer," said Binoche Chan, chief operating officer of List Sotheby's International Realty, adding that the demand had never disappeared and the room for negotiation offered by homeowners has been narrowing.
Figures from Colliers show that property transactions are on the rise, doubling to 4,300 in the first two months of the year compared to the last two months of 2018 when prices were falling.
Prospective buyers wait at Henderson Land Development's sales centre at Mira Place in Tsim Sha Tsui for a chance to buy one of 246 flats on offer at The Vantage, on March 9. Photo: Edmond So
The transactions however were still some way from the peak of 5,650 deals a month seen in the first half of last year.
The Federal Reserve's dovish attitude towards interest rate, easing tension between the US and China and a strong equity market are the major catalysts unlocking the pent-up purchasing power, according to Nomura.
"It is pretty clear now that interest rates will not increase in the US and the fundamentals, economy and unemployment rate have so far been quite satisfactory," said Nomura analyst Joyce Kwock, who expects a 5 per cent increase in home prices in 2019.
Under a linked exchange rate system, Hong Kong usually follows Fed's pace in terms of increasing or cutting interest rates. Commercial banks left mortgage rates unchanged amid a dovish policy stance by the local monetary authority.
Property transactions are on the rise this year. Photo: Jonathan Wong
Developers too are bullish, betting on homebuyers' eagerness to get on the property ladder in the world's least affordable housing market.
Mark Hahn Ka-fai, general manager for sales at Henderson Land Development, also expects a 5 per cent increase in home prices this year and sees demand unlikely to be affected too much by economic factors.
"Hong Kong is a little different. You can see the user demand is really strong from young people," said Hahn.
But not every one is convinced that home prices will continue to rise.
"Hong Kong home prices have increased to sky-high levels with limited upside potential," he said.
Chan said he expects foreclosures to rise along with declines in the stock market.
Lee Shu-kam, associate head of the Department of Economics and Finance at Shue Yan University, said that the current wave of buying is only sentiment driven and the correction is far from over.
Lee also sees prices dropping 5 per cent this year.
"Hong Kong is not immune to external factors. I would be surprised if the market moves upwards overall by the year-end, although there might be a small rise in the next few months," said Nicholas Brooke, chairman of Professional Property Services.
Tommy Wu, a senior economist at Oxford Economics, said that a downturn in the housing market cannot be ruled out as Hong Kong's GDP growth is expected to slow down to 1.6 per cent this year from 3 per cent in 2018.
Additional reporting by Cheryl Arcibal and Sandy Li
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
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