Hong Kong home prices to rise 5pc next year, supported by sales volume recovery, analysts say

Hong Kong home prices are expected to rise 5 per cent next year, supported by the sustainability of sales volume recovery, analysts say.

In contrast to the forecast of 10 to 20 per cent price decline made early this year, analysts now expect the housing market will remain flat in 2016, and even begin moving higher in 2017.

Buyers have been piling back into the market over the last couple months amid mortgage rate promotions, a slower-than-expected rate hike cycle and developers’ aggressive financing schemes on new launches, they said.

“This year, we do not expect prices to fall,” said Thomas Lam, head of Valuation and Consultancy at international property consultant Knight Frank.

Lam had predicted a 5 per cent decline in home prices in 2016.

Hong Kong’s home prices plunged about 7 per cent in the first quarter in anticipation of looming interest rate tightening and a weakening economy. In the last five months prices have bounced back around 6 per cent, according to government data.

Investment bank Macquarie predicts that home prices will go up 5 per cent next year, supported by the sustainability of volume recovery.

Primary transaction volume is expected to increase by 15 per cent in 2017 and 10 per cent in 2018, Macquarie said in its report released on Monday.

Concerns about Brexit will also support “the continuous recovery of Hong Kong property”, Macquarie said, since capital flow will be diverted away from an uncertain Europe to “safer regions” such as Hong Kong.

Derek Chan, head of research at property agent Ricacorp Properties, said the city’s market has bottomed out, proven by increase in prices and sales volume.

Hong Kong’s Land Registry said on Tuesday overall property deals in the city, including flats, shops and car parking spaces totalled 9,504 in September, a rise of 27.9 per cent month on month, and 73.8 per cent higher from a year earlier. Residential sales totalled 7,236 units, the highest since October 2012, according to propery agent Centaline.

According to Ricacorp’s secondary homes survey, average prices of 50 major housing estates in September stood at HK$11,669 per square foot, 1.33 per cent higher than the end of last year.

Home prices are now about 5 per cent below their peaks level in September 2015. Chan expects prices will retrace all the lost ground such that they recapture their former peak level sometime next year.

But the risk of a US interest rate change and softening economy remain major risks for the Hong Kong property market. According to a survey by CPA Australia, the majority of Hong Kong business professionals are cautious about the city’s economic prospects next year, amid pressures from other markets and political uncertainty.

American economist David Doyle believes change in the Federal Reserve’s interest rate target is increasingly likely to happen in December this year. This would flatten the yield curve over the next twelve to 24 months, analysts said.

However, some analysts believe the recent gains are a temporary reprieve in a market that’s likely to trend lower.

Nicole Wong, regional property research head at CLSA, forecasts an 8 per cent drop in prices in 2017, and an additional 5 per cent drop in of the two years following.

Mizuho Securities Asia property analyst Alan Jin said an important indicator could be coming from property developers, many of whom are becoming “more bullish,” and feel more comfortable after years of skittishness related to the interest rate outlook.

“In terms of next year’s forecast, I don’t know … it could go up a bit, but not substantially higher. It depends on how the volume plays out in the next couple of months,” Jin said.

On Wednesday, Kerry Properties beat out other bidders for a site in Kowloon Tong’s Beacon Hill, by committing HK$7.268 billion, or HK$21,016 per sq ft, the highest unit rate for a government residential development site in Kowloon at auction.

However, Moody’s Investors Service says a hot property market in Hong Kong will not be good for banks.

Despite a housing correction from last September to March 2016 where average housing prices fell 11 per cent, Moody’s analyst Sherry Zhang said “most fundamental indicators still show property prices at historically high levels.”

Affordability in terms of the price-to-income ratio is “already highly stretched,” she said.