Broker sees 20pc fall in HK home prices

PUBLISHED : Thursday, 14 July, 2011, 12:00am
UPDATED : Thursday, 14 July, 2011, 12:00am


Property bulls beware: the city's real estate sector could be vulnerable to a slowdown or even a significant fall, according to broker CLSA Asia- Pacific Markets.

'I am very concerned about Hong Kong property,' said Frances Cheung, head of China and Hong Kong strategy at CLSA. 'Although it doesn't mean there's an imminent correction ... I would like to highlight policy risks in this market.'

Cheung is predicting a 10 to 20 per cent fall in Hong Kong property prices in the event of a market shock.

Surging property prices have already forced the Hong Kong government to consider reviving the Home Ownership Scheme (HOS), under which the government builds flats for sale at subsidised prices.

Cheung said increased activity by policymakers meant the Hong Kong property market was now similar in some respects to the mainland's, where official policy, rather than supply and demand, often drives the real estate sector.

CLSA said a fall in transaction volumes, particularly for properties priced below HK$3 million, should make investors cautious.

Property prices have been driven up by low interest rates and by big-spending mainland buyers, rising 80 per cent over the past decade, according to Cheung. But real wages have risen only 0.2 per cent since 2000 - although rises in property prices accelerated over the past three years.

Cheung believes the growth is probably unsustainable, and predicts more buying restrictions and higher transaction costs. 'Low interest rates should stay for a while. But there's no guarantee that they [mainlanders] will keep buying,' said Cheung.

While many investors are increasingly concerned that the mainland bubble will burst, however, Morgan Stanley said a collapse was unlikely even though transaction activity was slowing. It predicts the mainland property market will prosper again if Beijing's credit-tightening policy leads to a soft landing for the world's second-biggest economy.

'While Chinese house prices have risen in recent years, disposable incomes have risen faster,' Jonathan Garner, Morgan Stanley's chief Asian and emerging market strategist, said. 'Moreover, disposable incomes may be higher than suggested by official data.'

Citing a recent market study, Garner said mainland officials tended to underestimate urban citizens' disposable income - in 2005 there was a discrepancy of 78 per cent, while in 2008 the gap widened to 90 per cent. While officials had also underestimated property prices in major mainland cities, Garner said the rise in housing prices was still outstripped by sharp increases in wages, and urbanisation would make housing ever more affordable.