Agents see market turning but analysts not convinced of revival in buying sentiment A surge in property sales triggered by the release this month of two new apartment blocks has been hailed by agents as a turning point in the four-month decline in sales volumes and prices in Hong Kong. But property analysts remain unconvinced that the transactions reported by the developers of the Palazzo in Fo Tan and Celestial Heights in Ho Man Tin signal a broad revival of buying sentiment. Sino Land, developer of the Palazzo, reported that it had secured more than 1,000 buyers since the release of the Fo Tan flats on May 9. Cheung Kong (Holdings), the developer of Celestial Heights, said 210 units were sold in two days after its launch on May 22. The Palazzo units were sold at an average of HK$9,000 per square foot, said Sino Land. This is about 40 per cent above the average prices at which secondary market units sold in neighbouring Royal Ascot in the first four months of the year. At Celestial Heights, the 210 units went at an average of HK$13,800 per square foot, said Cheung Kong. This compares with prices of HK$16,000 per square foot secured by secondary sales of units at nearby 15 Homantin Hill, and HK$10,590 per square foot for sales at No1 Ho Man Tin Hill Road. The sales at Celestial Heights helped boost primary transactions to about 110 at the weekend compared with about 20 during the the weekends last month when projects were yet to be launched. 'The strong sales at the Palazzo have put an end to the market's consolidation,' said Wong Leung-shing, an associate director for research at Centaline Property Agency. The surge in primary market deals was also supported by a recovery in secondary market transactions, Mr Wong said, citing Centaline data that showed that weekend sales at 10 'blue-chip' estates had increased from levels of 30 to 40 deals recorded over the past three months to 'more normal' levels of 50 to 60 over the past two weekends. The 'blue-chip' estates include Taikoo Shing, Mei Foo Sun Chuen and City One Shatin. Mr Wong said he expected housing prices to remain stable for the remainder of the summer. The best-case scenario of stable rather than falling prices was supported by UBS strategist Andrew Look, who said negative real interest rates and rising salaries were likely to underpin the property market. UBS believed better than expected GDP growth in the first quarter and a low 3.3 per cent unemployment rate last month showed Hong Kong's domestic resilience in the face of the United States slowdown. It forecast that home prices would begin trending up again by the third quarter at the latest. However, other analysts take a more cautious view of the market outlook. 'It is too early to conclude that sentiment has turned bullish from the sales performance of one or two projects,' said Manfred Ho, an analyst at BOC International. Mr Ho said limited supply of comparable projects in the same districts had helped to attract buyers. A clearer signal of a revival in demand, said analysts, would be seen if transactions in the secondary market recovered to more than 10,000 units a month - levels last seen between November and February. Last month, there were 7,434 transactions in the secondary market. Dao Heng Securities head of research Eric Yuen Chi-fung supports this view. Mr Yuen said strong sales at the Palazzo were likely to have been largely due to the presence of investors. Mr Ho said the medium-term outlook for the market continued to be overshadowed by uncertainties including the slowdown in global economic growth. The negative impact on spending power caused by losses suffered on the stock market as well as rising costs faced by mainland industrialists - who are the major buyers of luxury residential projects in the New Territories - would also weigh on the market. 'While the favourable fundamentals, including low interest rates, high affordability, tight supply and a strong economy are likely to cushion the downside and provide a more positive outlook for the residential property market over the longer term, historical patterns show that these factors may not bring about an immediate upside in the short term, especially amid concerns over a global economic slowdown with a negative wealth effect from the stock market,' he said. BOC International last month lowered its forecast for this year on property prices for the mass residential sector to no growth from the previous 20 to 25 per cent growth, and changed its view from 30 to 35 per cent growth in the high-end market to a 5 per cent decline. Deutsche Bank analyst Ken Yeung noted in a report on the market outlook that Hong Kong house prices had climbed 32 per cent over the nine months to the end of the first quarter. This was excessive, especially in the context of a global credit crisis, he said, and Deutsche therefore forecast that Hong Kong house prices would drop by a further 5 to 10 per cent over the next three to six months before staging a recovery in the fourth quarter. The Centa-City Leading Index that tracks average transaction prices in the secondary residential market shows that house prices climbed more than 30 per cent from mid-2007 to reach a peak in late February. By the first week of May prices were down 3.43 per cent from their February high. Data from the Land Registry, meanwhile, shows that sales volumes have been on a downward trend since the beginning of the year. From January to April, property transaction volumes and values dropped by an average 13.6 per cent and 20.9 per cent per month, respectively.