Dark clouds over Hong Kong's property market as 'perfect storm' looms
Real estate prices and sales have fallen following last year's government measures to cool the sector, and analysts are expecting more gloom
Hong Kong's housing market faces being caught in the middle of a perfect storm, with government curbs having crimped demand at a time of increasing supply and an imminent interest rate rise threatening to set off a severe price correction.
Home prices in the second-hand market peaked at 18 per cent above the previous 1997 high in March last year after doubling since 2008, but have since fallen 5 per cent in a sign the government's tough stance on reining in an overheated market is having the effect desired by Chief Executive Leung Chun-ying.
A collapse in demand that saw overall property sales plunge to a 23-year low of 70,501 deals last year has fuelled fears of a repetition of major downward trends of the past.
Amid the continuing slide, which began when the government imposed a hefty increase in stamp duty in February last year, gloom-and-doom forecasts of prices plunging as much as 35 per cent in two years have emerged.
"There are strong similarities with the 1997 bubble, but the exceptionally low level of interest rates has encouraged homebuyers to borrow more in this cycle than in 1997. So the market is far more dependent on inter-generational transfer of equity, low supply and low interest rates," said Andrew Lawrence, the managing director of real estate equities research at Malaysian investment bank CIMB Securities.