Source : The Edge – 27 Jun 2009
Despite the sharp rise in home prices led by mainland China buyers, analysts are divided on its outlook
TO BUY OR NOT to buy? Hong Kong home prices have brushed aside the fallout from the global financial crisis and risen about 15% so far this year. Is this the start of another bull run for bricks and mortar? Opinions differ widely.
“The market might take a breather in the short term because the economy is yet to show a sustainable recovery,” says Adrian Ngan Wai-hung, an executive director of securities house CCB International. “It’s not rational for home prices to grow so much in such a short period.”
But underpinned by low interest rates, a rally on the stock market and an influx of hot money, the Hong Kong property market has shown strong resilience to shrinking economic growth in 1H, and investment banks Goldman Sachs and Nomura International are positive about prospects for 2H.
In light of improving data, Goldman upgraded its property market outlook earlier this month and now expects home prices in both the primary and secondary markets to rise a further 5% in 2H.
Nomura raised its full-year forecast for massmarket home prices this year to an increase of 22% from 12%.
But Ngan, who was a property bull in the past, has turned conservative. Buyers were lured back to the market by relatively low prices in 1H, he says, but until convincing signs emerge that the economy is on a sustainable growth path, property prices would remain flat or even decline modestly.
Freddie Wong Kin-yip, the chairman of Midland Realty, also urges buyers to be cautious in the short term. He believes a price consolidation is imminent given that “prices have rallied too far too soon”.
Shih Wing-ching, the chairman of Centaline Holdings, expects a price correction in 3Q after the rapid growth in prices. “Quite a few wealthy people regret missing the latest rally. They will probably jump on board when prices soften a bit, and therefore the correction will be limited,” he says.
Aaron Fischer, head of Asian property research at CLSA, expects home prices to be flat in 2H, although they may rise slightly, as the market is likely to be supported by liquidity in search of returns that exceed those on bank deposits.
He also points out that although mainland buyers represent a small proportion of total demand, their participation has helped push up the prices of higher-end flats.
Sharing this view, Goodwin Gaw, chairman of Gaw Capital, says the newer developments along the rail lines and in the luxury sector would perform best, as mainland buyers favoured them.
Fung King-keung, managing director of Jones Lang LaSalle Hong Kong, raises concerns over falling residential rents, reflecting declining investment returns in the market. But he says the limited supply of luxury homes would allow them to outperform other segments in the short and longer terms.
Craig Shute, the senior managing director, CB Richard Ellis Hong Kong, Macau and Taiwan, expects luxury residential prices to climb a further 10% in the short term amid low interest rates and ample liquidity.
However, Alva To Yu-hung, head of research at DTZ, is cautious about the immediate outlook for housing, in the face of the economic recession and declining exports.
“I expect home prices will go up for two more months before retreating. Our conservative forecast is that prices will retreat about 10% by the end of the year,” To says.
He cautions that the proportion of investment buyers in overall transactions had risen to above the level seen in 1997, when about 35% of total transactions came from confirmor transactions — the resale of a flat before the completion of a sale and purchase agreement. That is an indicator of speculation.
Investors now take a longer-term view. Up to 40% of buyers in the secondary markets are now buying for short- and medium-term gains from reselling their units, To says, and he insists that without end-user support, price gains would not be sustainable.
BOC International head of research Manfred Ho Chu echoes this view. Reasonable affordability, rising demand from mainland investors, low interest rates and limited supply could help cushion a decline in home prices, he says, but the deteriorating economy in 2H would still cast a pall over property prices.
Veteran property consultant Nicholas Brooke, chairman of Professional Property Services Group, warns that further deterioration in the global economy will affect Hong Kong and have an impact on market sentiment. “I think we will find that the current liquidity will dry up. At best, therefore, I see no further increases in price, and potentially a 5% to 10% correction.”
So where do all these divergent views leave buyers?
Seize the opportunity if you mean to live in the flat and find the price affordable, Shih and Brooke suggest. But be prepared to see prices fall in the short term.
Ngan and Fischer suggest waiting for two to three months until prices fall. Fung says investors should consider offloading some of their investment properties as a sensible risk management move in the wake of the recent rally.
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