Lehman bets on rebound in property after rethink
Lehman Brothers has added its voice to the growing chorus of companies calling the bottom of the residential property market, reiterating an overweight stance on developer stocks.
The United States investment bank said yesterday its earlier estimates of supply had been overstated and, with some projects stalled and greater number of people now able to afford to own flats, prices would pick up.
Analysts Michael Leary and Tony Ho have forecast a 5 per cent gain in residential prices next year, followed by a 10 per cent climb in 2000 and 16 per cent jump in 2001.
Previously, Lehman had seen stagnant pricing for the next two years, followed by 5 per cent growth in 2001.
The forecast comes on the heels of similar assessments from other houses.
Earlier this week, Morgan Stanley Dean Witter said it foresaw a drop in supply in 2001 helping to drive a sharp rebound in prices.
Property stocks have rallied strongly in recent months, outpacing the blue-chip market's rebound from its August 13 low.
Since government intervention started, the Hang Seng Index has risen 61.83 per cent, compared with the property sub-index's 121.12 per cent rebound.
Lehman said there was scope for further share-price gains, singling out Sun Hung Kai Properties.
It upgraded the counter, which has risen 169.67 per cent since August 13.
'With price-earnings multiples for Sun Hung Kai Properties and Henderson Land [Development] at 1995 levels, the last property-price bottom, we consider the shares still undervalued,' Lehman said.
Backing the claim that the price drop from last year was complete, Lehman said it had found that some planned supply had been delayed, housing starts bottomed in June - a useful leading indicator of a price pick-up - and activity levels had stabilised.
'After conducting a recent series of property site visits to more than 170 sites around Hong Kong, we find evidence of projects where work has not begun,' it said.
Lehman cut its supply forecasts for last year to 2000 by 21 per cent to 95,564 units.
The most severe adjustment was for 2000, where it now expects 29,781 completions, compared with its previous forecast of 49,901.
Lehman said the recovery in residential prices would also be driven by an increased willingness by banks to issue mortgages.
With the prime rate expected to fall from 9.5 per cent to 9.25 per cent by end of next month and to 8 per cent by the close of next year, there would be a larger pool of income left for consumption, it said.
'In contrast to Hong Kong banking sector's reticence in extending loans to the trading sector and to property developers, the banks' appetite for mortgage lending has grown,' Lehman said.
'The clearest evidence of [this] is intensified competition among banks for mortgage business.'
