Home prices tipped to fall next year as interest rate rise looms

Those who could not afford to buy a home in the city this year have been given fresh hope, with property analysts predicting an expected interest rate increase will exert downward pressure on prices in the next 12 months.

Prices will be prevented from rising because of a slower economy, the rate increase and more new launches by developers next year, analysts say.

Cusson Leung, the head of property research at JP Morgan, expects home prices in the secondary market will fall by 5 per cent to 10 per cent next year as individual flat owners will be more willing to sell amid an anticipated economic slowdown.

In the primary market, analysts and property consultants say developers will not slash home prices. Instead, they will offer incentives to attract buyers.

Leung said primary home prices traded at a 4 per cent discount to secondary home prices in the second quarter of this year, but traded at a premium of 5 per cent in the third quarter. He said the price premium between the first-hand and secondary markets would be 5 per cent to 10 per cent next year.

International property consultant JLL said capital values of mass and luxury residential properties in the primary market had increased 5.7 per cent this year and those in the secondary market by 2.3 per cent.

Centaline Property Agency said its latest Centa-City Leading Index, which tracks secondary home prices at 100 housing estates, rose 0.23 per cent week on week to 130.46 last week. The index has risen 9.6 per cent so far this year to a new record high.

Joseph Tsang, managing director of JLL Hong Kong, said: "There will be more new launches in 2015 and more small units will likely be offered at competitive price levels. Developers will need to continue to offer benefits to attract buying interest. Home prices are likely to continue to face downside risks in 2015."

However, he added, "pent-up demand and rising construction costs should prevent developers from cutting prices significantly".

JLL expects home prices in the mass sector will be stable and luxury sector will fall by no more than 5 per cent.

The government's relaxation of double stamp duty conditions in May has released pent-up demand in the housing market, boosting property sales by 25.6 per cent year on year to more than 56,600 units between January and November, according to JLL.

In the primary market, 223 units were sold over the weekend of December 6-7, 2.5 times the 63 units sold the previous weekend. In the secondary market, 21 units were sold at the 10 largest residential estates, the same as the previous weekend, according to BNP Paribas.

While supply was not a major concern, Thomas Lam, the head of valuation and consultancy at international property consultancy Knight Frank, said mortgage rates were, but only when the change accumulated to 300 basis points.

"For a HK$4 million flat, home buyers need to find more than an extra HK$7,000 a month if rates are up 300 basis points. At that level, it will deter them from entering the market," he said.

Lam said he expected the interest rate rise could happen in the second half of next year, minimising the impact in 2015.

JLL Hong Kong's projections for home prices were amended on December 10 at the request of Mr. Joseph Tsang.