Hot money spurs developers to rush projects on to market
Surge in capital inflows prompts developers to catch record rally in property prices and rents and intervention in the currency markets
Property developers are rushing new projects on to the market in response to hot money inflows that are helping to drive prices to record highs.
After rising for four consecutive weeks, the main barometer of house prices, the Centa-City Leading Index, reached a new high of 111.19 for the week ended October 14 - tracking an 18 per cent increase in average prices on the secondary home market so far this year.
According to Midland Realty, residential rents have also risen to a new record of HK$22.90 per square foot - up 14 per cent so far this year.
Vincent Chan Kwan-hing, the chief executive of the residential department at Midland Holdings, said the third round of quantitative easing by the United States Federal Reserve, aimed at boosting the faltering US economy, had triggered a flow of hot money into Hong Kong.
"It is having a positive effect on the city's stock and property markets, and riding on the improved sentiment, developers are speeding up the marketing of new projects," Chan said.
HKR International yesterday sold 20 of 50 flats released at its Amalfi project in Discovery Bay at an average of HK$9,711 per square foot, agents said.
"Cash is no longer king. Strong sales reflect investor and end-user preference for property as a way to hedge against rising inflation," said Louis Ho, a director at Centaline Property Agency.
The market will this week focus on the imminent launch of the latest project, the 2,580-unit Reach, jointly developed by Henderson Land Development and New World Development.
The biggest launch in terms of the number of units in the past 10 years, the project had attracted more than 70,000 visitors to its show flats since Friday, a spokesman said.
Meanwhile, in an effort to combat the impact of hot money inflows, the Hong Kong Monetary Authority is likely to continue to intervene in the currency market to stem pressure on the Hong Kong dollar's exchange rate.
The authority sold US$603 million worth of Hong Kong dollars at the strong side of its target trading range of HK$7.75 to the US dollar on Saturday.
The move will have the effect of lifting the banking system's aggregate balance, or the sum of balances in the clearing accounts maintained by banks with the authority, to HK$153.3 billion.
Analysts said the authority was likely to resort to more interventions in the future.
The Hong Kong dollar is nominally pegged at HK$7.80 to the US dollar but the authority intervenes to keep it at between HK$7.75 and HK$7.85 against the US dollar.
"Investors are looking for alternative investments with higher returns, and many see Hong Kong as a good option," said Adam Chan, a senior analyst with CCB International.
In comments posted on his official blog yesterday, Financial Secretary John Tsang Chun-wah warned that the government would not hesitate to introduce further measures to stabilise home prices. "Home prices will come under downward adjustment pressure should the global economy turn sour dramatically. Small investors and participants should be well prepared and stay on high alert to the market risk," he wrote.