Hongkong Bank sees no surge in property values

PUBLISHED : Saturday, 02 December, 1995, 12:00am
UPDATED : Saturday, 02 December, 1995, 12:00am

HONGKONG Bank does not expect a strong rebound in capital values in the near future, despite a growing belief that the home price slump is bottoming out.

The territory's largest bank yesterday said in its latest monthly economic report that expectations of a sudden recovery in the housing market were constrained by various unfavourable factors, including continuation of Government's anti-speculation measures.

The 70 per cent ceiling on residential mortgage lending would act as a deterrent to potential home-buyers despite a greater willingness on the part of banks to lend.

Market sentiment was further overshadowed by the rise in unemployment from early this year.

The Government's latest statistics indicated that Hong Kong's provisional unemployment rate reached a 10-year high to 3.6 per cent in the quarter to October 1995, driven mainly by increasing supply in labour market due to the increased inflow of migrants.

The bank said in the near-term, overall unemployment would continue to be dictated by the rate at which the labour supply grew until the anticipated improvement in the domestic economy occurred.

Those factors 'will continue to weigh heavily on the market, dampening the likelihood of any strong recovery.' the bank said.

Nevertheless, the bank expected to see a limit in price drop in the light of improved affordability for home buyers.

Residential properties were now generally more affordable to home-buyers after the sharp correction, according to the bank.

Since property prices peaked in April 1994, the affordability index has improved from 102 per cent to 95 per cent in the third quarter of this year, primarily due to the sharp drop in property prices.

'Without the fear of an interest rate hike as happened in 1994, affordability for home-buyers will possibly be improved in the light of rising income levels and stable property prices.' it said.

The bank said the total supply of private residential units this year and next would be lower than the Government's 1996 projected figures of 26,164 units, which already was well down on recent years.

The bank predicted that the failure to meet the Government forecast might be attributable in part to the decline in applications for consent to commence work and the delay of developers' completion schedules.

Developers have wound down their construction works significantly this year in view of the uncertain property market, it said.

In addition, the excess stock of completed units in the hands of property developers has been reduced following a series of price-cutting sales this year, the report said.

Hongkong Bank said growth in the world economy would help stimulate activity in the territory which, together with fast population growth, should stop prices from declining much further.

On balance, home prices were expected to continue to stabilise at present level in the near-term, it said.