Using guide and fine wines as a guide, Hong Kong flats prices likely to stall
Nomura is cautious about local property market and says affordability will be a theme for 2013
Figuring out a fair value for a Hong Kong home may seem like an elusive exercise, but to help with the task, Nomura Equity Research suggests comparing what is happening with local home prices to what is happening with the prices of fine wine and gold. The advice comes after Nomura revisited a "collectibles" study it did almost three years ago.
In June 2010 the brokerage published a report called "Collectibles: homes, wine, or fine art?"
In the report it compared the relative performance of Hong Kong's luxury homes to wine and fine art, and back then it argued that investors should not give up on luxury homes just yet as a 120 per cent price gain since July 2001 had trailed a 215 per cent appreciation in the price of fine wine.
When Nomura revisited the case of the collectibles this month, it found that measured by the Liv-ex 100 Fine Wine Index wine prices had retreated by 26 per cent from a July 2011 peak.
Gold, which is supposed to be an inflation hedge and, like property, a beneficiary of the series of quantitative easing measures taken around the world to combat recession, had fallen 15 per cent from its peak in September 2011.
Based on these trends, the march of Hong Kong home prices looks likely to stall, said Nomura.
Already the rise in prices in the luxury sector had slowed, it noted, though prices of Class-A units sized smaller than 430 sq ft rose more than 30 per cent year-on-year.
This was triple the rate of appreciation of Class E units, sized more than 1,720 sq ft, which only rose by 9.2 per cent in 2012.
Taking its own direction from the collectibles test, Nomura said it was cautious about the outlook for the local property market and believed that "affordability" would become a theme for the year.
"We expect property prices to stall, with only a mid-single digit rise over the next two years," it said.