Investors see softening of prices as a short-term correction after run-up in home values Investment professionals who spend all their work time telling people what they should do with their money have no plans to cut and run from the Hong Kong property market and believe their portfolios will continue to generate solid long-term returns. The vote of confidence, expressed in interviews with the South China Morning Post this week, is based on a consensus that Hong Kong's economic fundamentals remain sound and the present easing of housing prices is no more than a modest adjustment after a lengthy run-up in asset values. In their private capacity, the investors appear to be putting their own advice to work for themselves. None of them expects domestic interest rates to rise sharply, and since credit is likely to remain plentiful and comparatively cheap and supply limited, the general view is that house prices would soon rebound after a short-term correction. But until the cloud hanging over global credit markets lifts and the outlook becomes brighter, they would not add to their existing property holdings. 'It is unavoidable that home prices will soften and could fall by perhaps 5 to 7 per cent in the next two months amid all the negative news such as rising mortgage rates and a falling stock market,' said Freddy Wu, the chief executive of Hong Kong Property. Mr Wu, who has put his money where his mouth is, bought four properties in the fourth quarter of last year - one in Tseung Kwan O, two in West Kowloon, and one in Taikoo Shing. He subsequently sold the two smaller units in Tseung Kwan O and West Kowloon, but has hung on to the two larger units measuring about 1,000 square feet each for long-term investment. 'Since rentals are rising, it is not a bad idea to hold the properties for the long term,' he said. Home prices have risen 25 per cent since the fourth quarter of last year, according to Centaline Property Agency. In recent weeks, sales activity has slowed and prices consolidated. Residential rents, meanwhile, have maintained a growth of 19 per cent over the past six months. 'We see more demand in the residential leasing market as some potential buyers hesitate to buy and turn to the rental market,' said Simon Lo Wing-fai, a director of research and consultancy at Colliers International. 'I am at present enjoying a rental yield of more than 4 per cent on my investment apartments,' said Mr Wu. He added that while he did not plan to buy another flat at the moment, others might be rewarded if they shopped for bargains. 'I gained a bit from the short-term trading of two units earlier. For me it is not worth entering the market since we could see a modest fall in the short run.' This view is supported by another investor, Peter Churchouse, an executive director of Lim Advisors who is the owner of a number of Hong Kong properties including four small flats in Henderson Land Development's CentreStage on Hollywood Road and a house nearby. 'I have not sold one of the properties,' Mr Churchouse said, adding that he would not consider selling unless prices were expected to fall by as much as 30 per cent - which was not on the cards. 'I will not sell. They are my retirement fund.' The collapse of property prices during the Asian financial crisis of 1997-98 came against a background of an excessive supply of homes, while property developers were highly geared and suffered from the high interest rate burden created by the regional financial crisis. As a result, developers undercut prices to speed up sales, Mr Churchouse said. This was not the case now, he said, since supply levels were moderate and while some developers were having difficulty refinancing their borrowings, none were vulnerably leveraged as they were in 1997. Kenny Tse, the managing director of Aetos Capital of Asia, a US private equity fund, upgraded his living standards by acquiring a more than 3,000 sq ft unit on Hong Kong Island at the end of last year. He ended his 10-year stint as an equity stock analyst at investment bank Morgan Stanley before joining Aetos last year. 'The move should indicate my confidence in the housing market,' said Mr Tse, whose confidence was based on the view that supply of such housing was limited and Hong Kong continued to boast sound economic fundamentals such as low unemployment. He said mortgage rates also remained at a comparatively low level and the only major question that lingered was how long the subprime credit issue would continue to be a drag on the US economy and financial sector - and hence the market in Hong Kong. But these investors' decision to hold rather than sell did not rest purely on a view about the immediate outlook for local property, Mr Wu said. 'If I were to cash in now, I will not know where to put my money. The Hong Kong currency is falling, interest rates are low and the stock market is falling.'