Earnings forecast for developers will be revised down 10 per cent this year as worsening unemployment and prolonged deflationary pressure probably will delay a recovery in home prices, according to SG Securities.
The brokerage house also downgraded property investors Hysan Development and Hongkong Land to underweight in anticipation of much slower office rental growth next year and a 10 per cent decline in office rental in 2002.
It expected the unemployment rate to reach an average 4.5 per cent this year, which would negatively affect home buying behaviour in the short run.
It remained positive on a longer-term residential property outlook and expected to see a 15 per cent rise in prices next year.
'We continue to believe that the continued cheaper mortgage rate against renting yield will appeal to a lot of potential buyers, and that the interest rate down-cycle favours home investment,' it said.
Rental yield in the luxury to mass-end sector ranged from an average of 4 per cent to 7 per cent per year, which was more attractive than receiving an annual 4 per cent from bank deposits, it said. Therefore, property prices were unlikely to fall significantly from present levels, it said.
Falling interest rates and a much-reduced housing supply coming on stream over the next few years were positive developments acting against the unemployment and deflationary trends.