Hong Kong property

Hong Kong home prices going down in 2016 but BNP Paribas says down cycle may be all too brief

Industry mulls if Hong Kong housing downturn is ‘cyclical’ or ‘structural’; demand for small flats, buying by newly weds to support market

PUBLISHED : Monday, 04 January, 2016, 4:47pm
UPDATED : Monday, 04 January, 2016, 4:47pm

The general consensus is that home prices in Hong Kong will drop in 2016.

The debate is whether the city’s housing sector is facing a cyclical or a structural down cycle.

Contrary to consensus expectations of a multi-year down cycle, BNP Paribas expects property prices to correct 10 per cent in 2016 before returning to an up cycle in 2017.

In its latest research report, BNP Paribas said its view is based on demand remaining in excess of supply over the next few years.

“We believe the market may be overlooking several factors that could drive a property up cycle. These include higher demand for smaller units, strong inward migration and pent-up demand from newlyweds,” the bank’s property analyst Ricky Ng said in the report.

The investment bank’s view is in contrast to the market’s expectation that home prices entered a downward cycle which could last two to three years and the fall cumulatively could reach over 30 per cent from its peak.

Centaline data shows the price index down about seven per cent from the last peak of the housing market in September 2015.

The government’s development minister Paul Chan Mo-po earlier has said the administration would not adjust the property cooling policy because of short-term fluctuations. The government is poised to beat its land supply target for the private sector to build 19,000 new homes this year by 1,300 flats.

In its latest 10-year housing supply target, the government plans to build 460,000 units, of which 40 per cent will come from the private sector.

Thomas Lam, head of valuation and consultancy at Knight Frank, said the home market could fall 10 per cent each year in 2017 and 2018 if the government does not remove those measures and the local economy weakens. The new supply will hit a high level in 2017 and 2018.

The current special stamp duty in place to deter speculators and short-term reselling stands at 10 to 20 per cent of the sale price, depending on how fast the residence changes hands. It was put in place in November 2010.

In 2012, the government also introduced the buyer’s stamp duty, requiring non-locals and companies to pay an extra 15 per cent. Buyers who acquire more than one flat also have to pay double stamp duties.

Ng of BNP Paribas said the recent price fall reflected high levels of transactions over the last two years, and it would take time for demand to build back up.

“Once this happens (we expect by end-2016), property prices should pick up again,” Ng said in the report.

Land supply could be lower than market expectations given lands recently tendered by the government could take longer to develop than in the past, the lender added.

“Ample liquidity conditions in Hong Kong on the back of China easing cycles should moderate the pace of Hong Kong rate increases despite US rate hikes,” said BNP Paribas.