Equities seen as a better bet in wake of property curbs

PUBLISHED : Wednesday, 15 December, 2010, 12:00am
UPDATED : Wednesday, 15 December, 2010, 12:00am

Bullish forecasts for the Hong Kong stock market could lure property traders to the equities market as additional stamp duties and higher initial down payments threaten to squeeze returns from making punts on property.

Following the imposition of the tax and credit measures last month to curb speculation in property, analysts have warned they could put a cap on the rise in home prices.

Meanwhile, investment bank CLSA on Friday tipped the main measure of stock prices, the Hang Seng Index, to rise to 29,000 points next year, while BNP Paribas set an even more aggressive target of 32,000 points. The forecasts represent gains of about 24 per cent and 36 per cent respectively on the index's closing level yesterday of 23,431.19 points.

'Since the government imposed heavy measures to penalise the quick resale of residential units, I have switched to buying stocks since their transaction costs are much lower,' said veteran property investor Jan Lai. Lai, who accumulated a property portfolio valued at some HK$1 billion in 2005, said home prices had risen sharply and yields had been squeezed significantly. He declined to disclose the value of his portfolio, but said he recently stopped buying property.

'The properties I bought earlier I will keep for leasing. I will not sell unless a reasonable offer is received,' he said. Since November 20, the government has levied additional stamp duty of between 5 per cent and 15 per cent on flats resold within two years. At the same time, the Hong Kong Monetary Authority reduced the amount banks could lend to buyers of homes worth HK$12 million or more from 60 per cent to 50 per cent of the price. The maximum loan-to-valuation ratio for mortgages on properties priced between HK$8 million and HK$12 million was cut from 70 to 60 per cent.

Compared with the high levy now imposed on property transactions, stamp duty on stock transactions remains at only 0.1 per cent of the value of transactions, while the average brokerage fee 0.18 per cent.

'The transaction costs for buying stocks are much lower and many stocks are trading at attractive valuations,' said Lai.

The anti-speculative measures prompted prospective homebuyers to hold off on making purchases. Connie Cheung, an executive at a media firm, is a typical example. Under the newly introduced measures, she said her capital would have to be locked up for two years to avoid paying the additional stamp duty.

'It would now be easier to make a killing on the stock market compared with investing in the heavily regulated physical property market. While I wait for a price adjustment in the housing sector, it would be better to buy blue chip stocks in view of greater upside potential,' she said.

However, Shih Wing-ching, the founder of Centaline Group, which runs one of the city's largest real estate agencies, Centaline Property Agency, holds a different view. 'I have no plan to reduce my exposure in property investment as the extra levy has little impact on long-term investors. It only drives away short-term property traders.'

Shih said investing in real estate remained less risky than investing in the stock market.

Eric Yuen, head of research at brokerage house GuocoCapital, said the possible inflow of capital from property to the stock market would have a limited impact on the equity market.

According to a Centaline Property Agency study, the value of apartments resold by buyers within two years amounted to HK$60.4 billion or 17.7 per cent of the value of the secondary market transactions in the first 10 months of this year.

Lee Wee Liat, regional head of property at Samsung Securities (Asia), said some investors would look beyond the Hong Kong market to places such as Singapore where there was better upside potential.

Taking stock

Property investors could switch to buying stocks

The amount of the price that banks can lend to buyers of homes worth HK$12 million or more is now: 50%

The maximum mortgage ratio for properties priced between HK$8 million and HK$12 million was cut from 70 to: 60%