Mixed fortunes in 2011 for HK's property market

PUBLISHED : Wednesday, 28 December, 2011, 12:00am
UPDATED : Wednesday, 28 December, 2011, 12:00am

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This year was one of mixed fortunes for Hong Kong's property market and analysts predict all real estate - except retail properties in prime locations - will enter a downward cycle in the new year.

The first part of 2011 saw the continuation of a two-year rally as prices shot up, propelled by a shortage of supply, low interest rates and strong economic growth.

The momentum has slowed since the second half, after the government announced further tightening measures - on top of the special stamp duties announced in November 2010 to cool off the market. Increased land supply, tightened lending on the mainland, the euro-zone debt crisis and global slowdown all helped to end the property market's bull run.

'Without substantial economic fundamentals, all that goes up will eventually come down,' said Richard Kirke, managing director for Hong Kong at property consultants Colliers International.

In the second half, the significant decline was seen in home sales, with transaction volume plunging.

According to data compiled by Hong Kong Property Services, 74,442 second-hand homes were sold from January to December 21. This represented a 39 per cent decline compared with the same period in 2010. Sales volume on the major 30 housing estates last month fell 43 per cent to 13,206 deals year on year, the lowest since 2006.

Prices for second-hand homes at 50 housing estates in November stood at HK$6,237 per sq ft, down 5.2 per cent from the same month a year ago, Ricacorp Properties said.

There is widespread agreement home prices could fall between 5 per cent and 20 per cent because of the rising cost of home loans and the economic concerns locally and abroad. However, according to Barclays Capital Research, in the unlikely event the Hong Kong economy suffers a hard landing, home prices could fall by as much as 45 per cent.

Earlier this month, Financial Secretary John Tsang Chun-wah said the government was prepared to unwind measures to cool the property market if prices continued to fall, as Europe's debt crisis and a looming global economic slowdown had spooked investors. But a day later the chief executive, Donald Tsang Yam-kuen, denied there were such plans.

Thomas Lam Ho-man of Knight Frank expects Hong Kong's mass housing prices will fall as much as 15 per cent. But he said the luxury housing sector would see better support from wealthy mainland buyers, with only a slight decline of about 5 per cent. 'As the central government continues to restrict home buying in mainland cities, cash-rich mainlanders will shift to buy in Hong Kong,' Lam said.

Kirke of Colliers expects a subdued outlook for rents and prices in Grade A office, luxury residential and industrial property sectors in 2012.

Colliers said the average Grade A office rent and price registered 14 per cent and 18 per cent growth, respectively, in the first 10 months of 2011.

But according to another property consultant, CB Richard Ellis, on a month-on-month basis average rents in Central were already down 1.09 per cent last month compared with September and now stood at about HK$120.24 per sq ft.

Faced with an economic slowdown and global uncertainty, tenants had been delaying their expansion and relocation plans.

Another property consultant, Savills, expects to see a 10 per cent drop in Grade A office rents in Central.

The only bright side may be seen in the retail property sector, where Savills expects a 10 per cent rise in rents for street shops in traditional shopping districts. In 2012, retail property rental and price increases are expected to taper off although it is the only sector projected to see further growth, according to Simon Lo, Colliers' executive director of research and advisory services for Asia.

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The number of residential sites the government will offer for tender in the first quarter of next year, plus one commercial site