Residential prices set to rebound

PUBLISHED : Sunday, 29 May, 1994, 12:00am
UPDATED : Sunday, 29 May, 1994, 12:00am

THE mass residential property market has over-reacted to the Government's move to set up a task force to examine it, analysts say.

Most expect prices to rebound by the end of the year.

On Thursday, Hong Kong's propety sector was stunned when a consortium of developers paid about $2 billion less than expected for land in the New Territories.

The shortfall led to suggestions that groups of buyers had kept their bids low for the Crown land at Fanling and Yuen Long as a warning to the Government not to interfere in the property sector. Another suggestion was that uncertainty over the market hadmade developers nervous about bidding to high.

The Government has many options in cooling down the residential market but some, including imposing a capital gains tax or further tightening mortgage lending, are politically dangerous.

''I don't think there is anything the Government can do to affect the market,'' said David Young, research manager of Colliers Jardine.

Some of the task force's recommendations are believed to centre on the level of deposit required to buy flats in pre-sales and a tightening of the rules on internal sales by developers.

There is doubt over the potential impact of these proposals from the task force but there can be no argument about the impact of its formation.

Mass residential prices fell between 10 and 15 per cent after Governor Chris Patten outlined the Government's resolve to deal with the state of the property market at the end of March.

''The setting up of the task force has taken the steam out of the market and now the affordability factor has come into the picture,'' said Gareth Williams, executive director of Vigers.

At the peak of the residential market in March, flats in Dynasty Court in Mid-Levels sold for $12,900 per square foot. Recently, these had changed hands for $9,900 per sq ft, said Santhia Dillon, group director, residential for L & D Associates. She saidbanks' attitudes towards property borrowers had hardened substantially over the past few years.

In a similar example, flats in Hong Lok Yuen, in Tai Po, which sold for $5,800 had since sold for $4,600.

''In 1988 or 1989, the banks would take you to lunch and one offered gold coins to agents if they introduced clients to them. Now it's a totally different attitude,'' Ms Dillon said.

She said many banks were giving the impression that mortgages would not be available until much later in the year. ''If you call a lot of banks now, they will tell you their quota is used up, but they will open them up again in July.'' Ms Dillon said she expected residential prices to recover in the autumn to around their March levels.

Supporting this view was the recent strong response to developers' offers of new flats in several prime developments, notably Laguna City.

Mr Young said the Government had limited options in dealing with property prices. ''Anything they can do has already been discounted by the market,'' he said.

''There has been an over-reaction. Prices will steadily rise for the rest of the year . . . back to March levels.

''But the Government will have kept mass residential prices stable between March and December. That, in itself, is a major achievement given the supply and demand imbalance.'' While the Government move on property hit the mass residential market almost immediately, the luxury market was hardly affected, although the growth in prices was temporarily curtailed, according to property consultants.

Mr Young said he expected luxury prices to end the year 10 to 15 per cent above their mid-May levels.

Demand from foreign multinational companies has been a big factor in the relative buoyancy in the luxury rental market.