Analysts are divided over the outlook for share prices of Hong Kong property developers under the new administration of chief executive-elect Leung Chun-ying.
In a report on the local property market released last week, investment bank CLSA said a proactive policy on boosting property supply promised by the new chief executive could see residential price growth halve over the next decade and erode investment returns offered by property shares.
But other analysts disagreed with this view, arguing that under the new policy land costs would fall and developers could maintain margins by selling more flats.
In the CLSA report, researchers led by Nicole Wong noted that following on the decade that ended in 2010, during which property prices grew at an annual average rate of 5.2 per cent a year, the current decade could see average annual price growth slow to 2.6 per cent.
Since investments in listed property developers had generated returns of just 3 to 8 per cent over the decade of phenomenally high price growth in the residential market, there could be little reason to continue holding property stocks over the next five years, the report added.
But while earnings in the property sector had peaked and were now due to slow, Hang Lung Properties, Wharf Holdings, and Hongkong Land could generate somewhat stronger earnings growth, analysts said.
Commenting on the CLSA caution on investing in property stocks, Eric Yuen Chi-fung, head of research at Guoco Capital, said developers did not only rely on growth in property prices to make money. He also said it would take at least three to five years for the market to feel the impact of the new policy.