Jones Lang Lasalle

HK housing market not at risk of a bubble, says Jones Lang LaSalle

Low unemployment and strong end-user demand pointers to strength of the sector

PUBLISHED : Thursday, 06 September, 2012, 12:00am
UPDATED : Thursday, 06 September, 2012, 3:08am

Hong Kong is not at risk of a housing price bubble, and home prices should remain firm, supported by strong end-user demand and sound purchasing power, says property consultancy Jones Lang LaSalle.

"The resilience of the residential property market is not a bubble, but a realistic reflection of Hong Kong's long-term economic fundamentals," Jones Lang LaSalle noted in its "white paper" on the housing sector released yesterday.

Continued low unemployment, together with a substantial increase in the number of high-income households, provided ample real income to support residential property demand and prices in Hong Kong, it said.

The paper argued that end-user demand had been artificially suppressed by the government's austerity measures in 2010 and last year, including a special stamp duty levied on short-term trades and a reduced loan-to-value ratio for new mortgages.

The suppressed demand was shown by the divergence between prices and volumes.

While prices of residential properties had grown by 13 per cent from the start of last year to the middle of this year, overall residential sales volumes had dropped from about 11,000 per month in 2010 to only 7,000 per month over the 18 months from January last year. The divergence was the first in 15 years, it said.

"If the labour market does not experience significant downturn, the end-user demand accumulated is likely to provide considerable support for the residential property market," said Joseph Tsang, managing director and head of capital markets of Jones Lang LaSalle, Hong Kong.

Low interest rates and a record number of marriages and births last year were also positive points.

Recent market developments support the positive sentiments expressed in the report.

The latest in a series of record-breaking transactions was concluded this week when a 401 square foot unit in The Merton development in Kennedy Town sold for HK$5.3 million, or HK$13,217 per sqft, a record price for the area. Also, home prices in the secondary market, as tracked by the Centa-City Leading Index, have remained firm despite the measures announced by the government last week to curb demand and price growth by increasing supply, and are up 11.9 per cent this year.

Supply of homes for sale, however, has fallen since the measures were announced, because many sellers decided to hold off in the hope of prices rising later. Weekend sales at 10 selected estates fell 40 per cent from the previous weekend to 27 units, according to Centaline.

Two developers are due launch projects this month, and flat owners in the secondary market were likely to lower their prices once the new projects were launched, said Richard Lee Chi-sing, chief executive at Hong Kong Property Services.