Market forces mean home prices are likely to carry on climbing

Despite the government's efforts, demand is still too strong to cool down the property market

PUBLISHED : Tuesday, 26 February, 2013, 12:00am
UPDATED : Tuesday, 26 February, 2013, 4:38am

When will property prices stop rising? That was the question a colleague asked when she was editing my report about Hong Kong property prices setting new records on three consecutive weeks this month.

It is also a question on the minds of many people who are not convinced that the new round of cooling measures introduced by the government last Friday is going to rein in the record-setting advance of prices.

So my answer to the editor was that property prices would probably continue to rise, even though they were now at such high levels.

In an attempt to curb price growth, the government introduced a buyer's stamp duty in October last year. But after taking a breather for two months to digest the impact of the measures, property prices continued their upward trend.

The average price of flats sold in the 100 major housing estates in the city as measured by the Centa-City Leading Index has now risen a shade under 6 per cent to a record-high of 121.58 points since the stamp duty was implemented in October.

While I hope the new round of cooling measures is able to curb the growth in property prices, I do not expect this to happen. Which is not to say the measures are ineffective, but rather that housing demand is unstoppably strong.

Data from the Census and Statistics Department shows a steady rise over the past three years of the number of babies born to Hong Kong mothers. Last year, 58,400 births were recorded, nearly 14 per cent more than a year ago.

You can expect when their children grow older, these families would then begin to look for a three or four-bedroom flat.

The government, despite starting to increase land supply in the past two years, has imposed development restrictions on flat sizes and, in cases, set a maximum size limit on new flats of about 500 square feet. Those flats will not meet the demand from growing young families.

In addition, 58,900 people were married last year, similar to the numbers who married in 2011. These newly married couples are a major source of housing demand.

It is true that speculators have been kept away from the property market after the government imposed special stamp duties.

However, low interest rates and currency depreciation due to the loose monetary policy of the United States continue to drive demand for property as a long-term investment.

Many people believe buying a flat is a good investment to hedge against inflation.

This explains why car park spaces, small shops in shopping centres, and hotel rooms have attracted so many investors over the past few months.

Many people are cash-rich and looking for investment tools.

If residential property prices were to show signs of falling, some of these investors could return to buying flats. At the same time more newcomers who have witnessed the sharp rise in property prices and stable rental income would be tempted to invest.

As for housing supply, new home supply will remain at a low level until 2015.

In the secondary market, many flat owners are under no pressure to sell at the moment because mortgage payments are low, rental yields are high, and the value of their flats has increased significantly.

Given the tight housing supply, strong structural demand for property, and currency depreciation, I do not see property prices being curbed by the present measures adopted by the government.

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