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Peggy Sito

Real-estate experts are at odds over a high-level warning that the boom may end in disaster

Real-estate professionals are divided on whether the property market is at risk of overheating after sharp price increases in recent months.

The chief of Hong Kong's largest bank, HSBC Asia-Pacific chairman David Eldon, sent a shiver through real-estate investors last week with a warning that the city was at risk of a property bubble.

Some industry insiders said this week a bubble was unlikely as prices were still well below their peak during the boom of 1997.

Like Mr Eldon, however, others urged caution.

The bank chief's warning was triggered by the dramatic gloom-to-glee turnaround  in the property market over the past six months.

Developers who only six months ago were urging the government to prop up the market are now advising it to refrain from interfering.

Supply, estimated at more than 40,000 flats and cited by analysts and developers as a cause for concern,  seems no longer an issue as buyers return.

The market has also been cheered by news that the  number of mortgages in negative equity has fallen by a third from an estimated peak of  106,000 in June last year.

Mass housing prices have risen more than 20 per cent from a six-year low last August, according to real-estate agents.

In the luxury residential and retail property sectors, speculators have driven up values higher and more quickly. Luxury residential prices have reportedly risen 30 per cent, and retail prices  as much as 100 per cent.

Shih Wing-ching,  chairman of one of the city's leading agents, Centaline (Holdings),  said the surge was reasonable given that the market was in the first stage of a recovery trend.

'The abrupt turn  came after the central government showed support for the Hong Kong economy last July,' he said.

Triggers were the easing of restrictions on individual travellers from the mainland  and the Closer Economic Partnership Arrangement signed with China.

Andrew Leung, professor of real estate at the Chinese University of Hong Kong, said a better economic outlook had restored confidence, prompting a flood of  buying by cash-rich home-hunters and property investors over the past few months.

But all the indicators disputed a bubble was forming, he said.

When the market peaked in 1997, one in every two  buyers was either a speculator or an investor. Today, developers believe investors and speculators make up 20 per cent of buyers in the mass housing market and more than 30 per cent of buyers in the luxury and retail markets.

Prices at 50 large housing estates are only 40 per cent of what they were in 1997, according to Centaline's property price index. And the number of transactions last month totalled 9,468, compared with 22,699  in July 1997.

The affordability ratio - the ratio of monthly repayments to median  income -  is 22.53 per cent, compared with 85.4 per cent in 1997, according to Midland Realty.

However, realtors agreed prices had risen faster than expected, thanks to buyers' fears of missing out on a bargain and speculative momentum.

'Hong Kong is a small place with a high population and a free flow of information,' said Mr Shih. 'People are easily influenced by each other.  They are tempted to buy when they hear that  their friends and neighbours are entering the market.'

Morgan Stanley chief economist Andy Xie said: 'Hong Kong people are speculators as their wealth comes from previous speculative investments. Their money-making dreams revive when the property market is generally believed to be recovering.'

However, he warned that Hong Kong's economic outlook remained clouded  by competition from major mainland cities,  the 7.2 per cent unemployment rate and  signs that interest rates will rise in the long term.

Professor Leung said the latest property boom  was driven not by economic fundamentals in Hong Kong but by the weak US and Hong Kong dollars and the large amount of overseas money flooding into city.

'This encourages people to hold assets rather than cash,' he said.

'The property market will keep rising as long as these external factors remain valid.'

However, the key to the property market's outlook was whether Hong Kong's economic fundamentals could improve in the wake of the strong inflow of money, he said.

'The new money will trigger new investments and, as a result, could lead to an improvement in the local economy, thereby relieving  unemployment,' he said.



Insiders dispute bubble trouble