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PropertyHong Kong & China
BRICKS & MORTAR

Predictions of a huge price fall have been wildly exaggerated

Despite the government's cooling measures, Hong Kong flat prices have stabilised recently

PUBLISHED : Tuesday, 28 May, 2013, 12:00am
UPDATED : Tuesday, 28 May, 2013, 3:18am

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 …

paggie.leung@scmp.com

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HK-Explorer
It shows the government implemented the correct policies to cool the market and remove the rampant speculation that had started. If the government had not intervened then there would have been a 10% increase in property prices.
You also have to remember the expected increase in interest rates has not yet occurred. If they increase significantly then you will see dropping of prices. How much depends on the difference between demand / supply. Supply is low and demand is high so I would guess a 10% correction in the next 12 months would be about right.
dng18dng18
Once the US increases the interest rates in 2014 and slows down QE substantially, property prices will be forced down. The fact of affordability will finally begin to hit home.
jerelee
It is funny we all want to focus long term. how long is long? how is 2003 different from 2013? More mainland buyers? Absence of BSDs? Ah ha, the different may just be officials keen jerk reactions to fluctuating property prices. Property is still good old commodity like any thing else, what goes up too high, must come down.
jezlinho
@md.lai.39 BSD at 15% is only if you are a buyer/investor in a second property. Hence, the property does not have to appreciate 17% to break even. One should look at the long-term issue here: HK simply does not have enough supply of land and HK is already over-populated!
mr.lobster
The market is deflating and the downward has only just begun. In the next few days, Land Registry will release the numbers of sale for May. It won't be pretty.
With 15% BSD and 2% commission for purchase then selling of the apartment, plus 3 years lockin period. which means what you buy now must appreciate 17% to break even.
No wonder HSBC dropped mortgages rates to 2.15 ... a record low. But cheap money you borrow now wont be cheap by year end, and when US treasury stops easing, selling what you buy nowat a loss would be almost impossible due to dropping valuations.
The game is up

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