Economic woes are keeping many potential buyers in the middle sector at bay, report says The Hong Kong property market has probably reached the bottom but middle-income earners will hold off buying until they feel more secure about their economic future, a Credit Suisse First Boston report says. 'Hong Kong property has bottomed even though a full recovery is not likely to be seen until 2005,' CSFB analyst Victor Kwok said. According to the report, a two-tier market has emerged in Hong Kong, with sales picking up for low-end and high-end properties. But demand in the middle segment remains the weakest link, as the main buying power - middle-income earners - are still suffering under the weight of salary cuts and higher taxation. Hong Kong property has reached its lowest point in 28 years since peaking in 1997, according to the report. CSFB forecast stable supply and demand in the low-end property segment, with record-low mortgage rates of 2.4 to 2.5 per cent making flats priced between HK$1.2 million and $1.8 million affordable for cost-sensitive buyers such as young couples. There is also activity at the high end of the market. Homes at 3 Coombe Road and Kelleteria recently sold quite easily at US$3 million to $10 million each, indicating reflation in the luxury segment. CSFB said luxury residential prices were estimated to have fallen 58 per cent from their peak in 1997, compared with a 67 per cent drop in mass residential prices. The report said whether Hong Kong property developers would regain pricing power would largely depend on middle-income households, which are still missing from the market. A few years of strong economic growth - along with rising salaries - were needed before these buyers would be able to return to the market, it said. 'Middle incomers will not re-invest in residential properties unless they feel job security or get a pay rise,' Mr Kwok said. In addition to economic security, other potential uncertainties clouding the picture for property were a potential increase in interest rates next year and the introduction of a sales tax, he said. According to Midland Realty, confidence has been boosted in part by recent purchases of low-end flats by mainland visitors, though these buyers are estimated to account for just 2 to 3 per cent of home sales in Hong Kong. These sales have been aided by the relaxation of travel restrictions for mainland visitors to Hong Kong, who previously were required to visit in tour groups. In addition, provisions under the closer economic partnership arrangement would also benefit the property market, CSFB said. Among the major property developers, it recommended the stock of Cheung Kong (Holdings), Sun Hung Kai Properties and Henderson Land, because the three combined accounted for about US$41 billion in market capitalisation and about 10 per cent and 22 per cent of the Hang Seng Index and the Morgan Stanley Capital International Hong Kong index, respectively.