CLSA sees Hong Kong property prices falling 15pc by end of 2014

Hong Kong brokerage CLSA, owned by Citic Securities, expects property prices in the city to drop 15 per cent by the end of next year as the government's market-cooling measures take effect.

"Prices will correct a little more if interest rates are raised and the economy weakens," CLSA's regional head of property research, Nicole Wong, said yesterday when releasing reports on the Hong Kong and mainland property markets.

CLSA said Hong Kong property prices had declined 3 per cent from their February peak.

With the outlook for the Hong Kong property market deteriorating amid an increase in US Treasury bond yields and a move by the Hong Kong government to bring forward the presale of units due for completion in 2015, CLSA revised downward its prediction for residential property prices. It had been expecting a 10 per cent decline by the end of next year.

"Property prices have started a mild decline," Wong said. "The pricing of new projects released recently is close to or lower than that of second-hand homes. It is a signal that a correction will happen."

As the government will continue to increase land supply, developers will have the opportunity to buy land at lower prices. Wong said she did not believe that developers would maintain high inventory levels to avoid price cuts, adding that property prices would not fall dramatically even if interest rates were raised and housing supply increased significantly in 2015. She said that retail rental costs had peaked.

"We have started to see empty stores on Hong Kong Island and in core shopping areas," she said.

In the mainland residential market, 460 million square metres of property was sold in the first half of the year, 30 per cent more than in the first half of last year and 20 per cent more than forecast by CLSA. That prompted the firm to raise its forecast for mainland property sales for the whole year by 6 per cent to 1.11 billion square metres.

It has also raised its forecast for property price growth on the mainland this year to 9 per cent, from a range of 3 per cent to 8 per cent. In the first half of the year, average property prices rose by 5.6 per cent and CLSA expects further growth of 3 per cent in the second half of the year.

Even though a number of mainland sites had sold for high prices, Wong said she believed the central government would not introduce new cooling measures for the property market this year. Weekly transactions in 18 mainland cities had plummeted, she said, suggesting a slowdown in monthly sales that should relieve upward pressure on prices.

Citic Securities, the mainland's largest broker by market value, is controlled by Beijing-owned Citic Group.