Hong Kong property slide divides Wall Street investment banks on recovery outlook for home prices

By Lam Ka-sing kasing.lam@scmp.com / https://www.scmp.com/business/article/3083383/hong-kong-property-slide-divides-wall-street-investment-banks-recovery?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3083383 | May 12, 2020 12:06 PM SGT
The slide in Hong Kong's property market is dividing analysts at Wall Street investment banks who are telling clients different stories on the outlook for home prices this year.
Morgan Stanley took a slightly bearish turn this week by tempering its forecast for a 5 per cent rise in prices this year, as economic reports last quarter disappointed. JPMorgan Chase is keeping to a 10 per cent drop in prices, with a dose caution on the risks of a second wave of US-China trade war and social unrest.
The differing views underscore the myriad of challenges confronting the city, where growth has cratered and unemployment surged to near the highest in a decade. While the fight to contain the coronavirus is yielding results, efforts to end social unrest remains unpredictable.
"We had hoped for residential prices to bottom in March 2020 and go up by 10 per cent thereafter," Praveen Choudhary, a managing director who tracks Asian gaming and Hong Kong property and conglomerates at Morgan Stanley said in a report on May 6.
"Since then, the Covid-19 outbreak has resulted in significantly lower GDP and the unemployment rate has gone up to 4.2 per cent, a 10-year high," he said. "These are generally negative for residential prices."
Hong Kong's economy shrank 8.9 per cent last quarter from a year earlier, the worst on record, the government said this week. Home prices in the world's least affordable housing market have retreated by 5.4 per cent on average from the peak in May last year, with some consultants predicting as much as 20 per cent slide.
That has not stopped Citigroup analysts from calling the bottom of the market. Prices are likely to rise between 5 and 10 per cent from this month up to the end of the year as the viral outbreak comes under control and economic activity picks up momentum, it said in a report on Monday.
Recent property transactions in the secondary market are breaking new highs and suggests the buying desire is in place, said Cusson Leung, managing director and head of Asia property and Hong Kong research at JP Morgan.
Still, while chances of a big decline in home prices are slim, Leung is concerned that the coronavirus pandemic will reignite trade tension between the US and China, with possible jeopardy the first phase trade deal. He also noted the emergence of social unrest.
Chris Yip, senior director at S&P Global Ratings, said Hong Kong residential prices could see a 10 to 20 per cent decline by end of this year from the peak last year.
"Although we expect to see fluctuations with changing dynamics in pent up demand as prices drop, the structural undersupply and low interest rates continue to underpin the market and shield it from the type of dramatic falls seen in past crises," he added.
Jeff Yau, Hong Kong property sector analyst at DBS, said the pent-up demand fuelled recent transactions are not sustainable in the face of economic slump and rising unemployment. Prices are likely to fall 10 per cent, while the high-end market could slide by 15 per cent, he added.
"The pent up demand is released from buyers who could not buy in the last few months," said Yau. "It will run out eventually" while an increase in supply from new launches will temper price gains, he said.
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