Cooling measures slam brakes on home sales

PUBLISHED : Tuesday, 23 November, 2010, 12:00am
UPDATED : Tuesday, 23 November, 2010, 12:00am

Shares of Hong Kong's real estate companies slumped yesterday as government plans to lift stamp duty on property transactions spooked investors and sparked a plunge in home sales over the weekend.

Analysts, however, believe the measures will not be adequate to stop a new wave of capital flowing into Hong Kong, and the city's property market will not see a turnaround in the medium to long run.

Property heavyweights Sun Hung Kai Properties, Cheung Kong (Holdings), New World Development and Sino Land each fell at least 3 per cent yesterday. The Hang Seng Property Index, which follows seven major locally listed developers, dropped 2.6 per cent, the most in three months. Midland Holdings, a real estate brokerage, plunged 17.4 per cent to HK$6.49, its largest drop in over a decade, according to Bloomberg.

Only 14 second-hand flats at 10 large housing estates such as Taikoo Shing on Hong Kong Island and Mei Foo Sun Chun in Kowloon sold over the weekend, down almost 80 per cent from the previous weekend.

The government's measures - seen as a move to prevent a property bubble in the wake of the US Federal Reserve's latest US$600 billion 'quantitative easing' - include additional stamp duty of up to 15 per cent on property speculation and a lower mortgage ratio for costlier flats.

'[The government] can cool the market for a few months but liquidity is the fundamental that the [Hong Kong] government cannot change,' said Goodwin Gaw, the founder of Gaw Capital. 'There is too much liquidity. Where can it go?' said Gaw, who expects to see sales volumes plunge but prices to correct only modestly. 'But it is a good move. At least, prices will stop rising.'

Morgan Stanley said in a research report released yesterday that transactions should slow in the near term and individual sellers might lower asking prices. 'We do not see this as a turning point for Hong Kong property,' it said, adding that favourable fundamentals remained intact while the impact on long-term investors was limited.

For property stocks, Morgan Stanley said SHKP and Sino Land, which have more exposure to the Hong Kong residential market, would be harder hit.

Commenting on yesterday's stock performance, Francis Lun Sheung-nim, general manager of Fulbright Securities, said: '[The measures] took money from the pockets of the speculators and that's why the property stocks fell. It's a reasonable correction.'

Lun said property-related stocks would be under more selling pressure in the near term as investors looked to cash out following the downbeat transaction numbers over the weekend.

Kenny Tang Sing-hing, an executive director at Redford Asset Management, expected long-term buying interest in the local property market to remain intact, however, providing pricing support to the developers. 'Although the turnover may be slowing down, prices may not drop much because interest rates are still very low and fund flows are still coming into the Hong Kong market,' he said.