Picking the peak of Hong Kong property market a futile exercise

As home prices roar above the highs of 1997, homeowners wonder whether to take a profit

PUBLISHED : Tuesday, 16 October, 2012, 12:00am
UPDATED : Tuesday, 16 October, 2012, 7:26am

It's the age-old question that arises whenever property prices appear to have peaked: "Should I sell my home now, take the profit, and buy back later?"

Of course, it is not always easy to identify the peak, and the strategy could backfire badly if prices continue to rise after you make the jump.

But since May, when prices first burst through the high of 1997 - with gains of 18 per cent in the year to October 7 - there has been growing talk that the time might be right to cash in gains, rent and wait for the next down cycle before re-entering the market at a capital gain on the trade.

However, the advice from the experts is: "Don't do it." For every seller that gets the timing right, many more are likely to get it wrong.

I know a couple who did not listen to the advice and jumped. In April this year, they sold the North Point Hill unit they had lived in for 18 years because they believed prices would fall after the new chief executive, Leung Chun-ying, took office in July. They pocketed HK$18 million on the sale - three times what they paid 18 years earlier.

But now they worry about when to buy back into the market. Prices have continued to rise and, having spent some of their gains on jewellery and a new car, renting a flat and having lost some on the stock market, their windfall is meanwhile shrinking. That makes them anxious.

Speaking personally, I must admit that the hassle and the transaction costs incurred in trading homes have tended to keep me where I am. But if I had taken profit on a trade, what factors would I take into account before jumping back in?

Let's recall why the couple in my example made their move. They did so because they foresaw policy risks for the property market under Leung's administration; and indeed, since the end of August, the government has rolled out myriad measures aimed at curbing price growth in the residential market.

On September 14, the Hong Kong Monetary Authority moved to cool the market by making second mortgages harder to get after the United States announced a new round of monetary easing.

But home prices have not dropped as our traders were expecting. The latest data shows that in the week to October 7, prices edged up by 0.88 per cent, leaving the year-to-date gain at 18 per cent.

However, Macquarie Equities Research in its latest report released last week predicts that it is still hopeful of further tightening measures and expects the timing to be around December, before the policy address on January 16 next year.

As new supply will come in this quarter, it expects home prices to see downside risk of 5-10 per cent over the next nine months.

Our couple is now caught in a dilemma of their own making. The market is facing higher policy risks, but what impact might the US monetary stimulus have on the local housing market?

History shows, according to an analysis by property consultancy Colliers International, that Hong Kong house prices rose 37 per cent during the easing over the period from December 2008 to March 2010, and saw growth of 15 per cent during the second round from November 2010 to June last year.

This time, Colliers expects growth of about 5 per cent over 12 months.

In the meantime, the government is finalising details for a significant increase in housing supply in the city, including the release of enough land to allow for 65,000 new residential units over the next three to four years.

The new supply might come riding to the rescue of our couple. But can they be sure it will?

The moral of the story is that there is no crystal ball to predict where prices may be headed. But if, like the couple in our example, you sold in the hope of buying back later at a net gain on the transaction, be sure to keep your nest egg safe, you may be needing it all, and then some …