Predictions of a huge price fall have been wildly exaggerated
Despite the government's cooling measures, Hong Kong flat prices have stabilised recently
Home prices might have fallen slightly as a result of government measures to cool down the property market three months ago, but will they go on to decline as dramatically as some analysts have predicted?
Not if latest price trends are an indication.
In late February the government doubled stamp duties levied on the sale of homes and non-residential properties valued at more than HK$2 million. The Hong Kong Monetary Authority also ordered banks to increase the amount of capital they hold against new residential mortgages, causing some banks to raise mortgage rates by 25 basis points.
The market immediately responded with a significant drop in transactions and prices. Some observers and research institutes such as Sanford C. Bernstein forecast that home prices may fall by as much as 20 per cent this year.
But three months on, and the market seems to have stabilised and sales momentum, except for the primary market which is still affected by the new ordinance on flat sales practices, has started to pick up. The Centa-City Leading Index, which tracks second-hand home prices at 100 private housing estates, tracked a decline in home prices from March to the end of April, but since May 6 shows that prices edged up by 0.24 per cent.
True, that leaves prices down by 3.94 per cent from a peak in early March, but the latest trend is up, and year-to-date prices remain up by 2.6 per cent.
Secondary flat sales have also rebounded significantly from the trough of only 62 sales per week in early April to 178 sales for the weekend ended May 26, according to Ricacorp Properties which tracks the sales of homes in the 50 largest housing estates.
The numbers appear to show the market is stabilising, rather than heading for further major falls. And though it will come as no surprise if some owners offer small discounts to get their flats sold quickly, unless there are sudden shocks to the local and external economies, a steep drop in prices in the near future is looking unlikely.
Strong local demand and low interest rates remain the key supporting factors for the local housing market. Just when property prices started to come down, aspiring buyers and investors were lured back to the market, giving support to property prices even though they have not climbed significantly.
"The market has already digested the news about double stamp duty and the impact isn't that significant," said Bocom International property analyst Alfred Lau.
"Some banks have raised their mortgage rates by 25 basis points, which equates to an increase in flat prices of 3 to 5 per cent. This is roughly the rate of decrease in home price in the last two months … meaning the cost of buying is back to the level before the measures and it should remain stable now," he said.
Noting that some banks had wound back the 25 basis point mortgage rate rise they announced in March due to a fall in new loan demand, BNP property analyst Patrick Wong Chi-leung said secondary home buyers had gradually returned to the market.
"We have no crystal ball" is the common response we get from interviewees when asked about their views of the property market. Neither do we. But on the available evidence it does not seem that prices are on course to retreat as far as some analysts feared. They might even rise …