Moody's bearish about growth

PUBLISHED : Friday, 15 October, 2004, 12:00am
UPDATED : Friday, 15 October, 2004, 12:00am

Ratings firm goes against forecasts for increases in residential prices with single-digit outlook despite bullish land sale

In a marked contrast to all the bullish price forecasts for residential property following Tuesday's land auction, credit research firm Moody's Investors Service yesterday predicted modest single-digit growth over the next year.

Although the rating agency projected its most optimistic view of the Hong Kong property market since the bust of 1998 it said the recovery might still be hindered by factors such as unemployment and modest pay rises.

Residential prices might also be affected by uncertainties such as interest-rate rises and China's credit-tightening policy, it added.

Moody's forecast was much less optimistic than many analysts' reports.

BNP Paribas Peregrine's Adrian Ngan said yesterday that he expected residential prices to jump up to 30 per cent in the next 15 months.

According to Clara Lau, Moody's vice-president and senior credit officer, the company does not expect prices to rocket as they did pre-1997 because of more rational buying behaviour and improved transparency in the property market.

'The land supply is now more market driven. It's up to developers to decide the risk they are willing to take,' said Ms Lau, who also urged the government to give some indication of land supply for the next two to three years to enhance the transparency of the land-sale system.

She said the government would not want to encourage a high land-price policy which could lead to social instability with runaway residential property prices that went beyond reasonable affordability for potential buyers.

Ms Lau also predicted that a cyclical property shortage would appear in 2006 if annual sales in the primary property market exceeded 24,600 units per year.

'However, long-term housing supply remains abundant with two railway housing projects and the Urban Renewal Authority's projects,' she said.

The average annual take-up in the primary property market between 1998 and 2003 stood at 20,300 units.

In 2000, it reached a peak of 29,000 units sold, while the lowest number was 13,000 in 1998.

In line with Moody's view of property prices, the company will not be raising its rating for property stocks in the near future.

Ms Lau said developers would face lower free cash flow or higher borrowings as they replenished their land banks and renovated and redeveloped older office and retail properties.

'The releveraging cycle has begun,' said Ms Lau, adding that many developers had borrowed on a floating interest rate.