Banks revise Hong Kong home price forecasts amid slower declines

Bank of America Merrill Lynch has raised its forecast for Hong Kong property prices, joining JP Morgan in revising the outlook.

Raymond Ngai, Bank of America Merrill Lynch head of Greater China property research, said yesterday the bank expects residential prices to drop 5 per cent or less this year and 10 per cent next year, slower than the 10 per cent and 15 per cent drops it had earlier forecast for this year and next.

The investment bank's forecast came as Centaline Property Agency said its CCL Index, which tracks second-hand home prices, rose 1.78 per cent week on week to 123.35, the highest in 67 weeks. It is just 0.31 below the record 123.66 set in March last year.

On Wednesday, JP Morgan predicted home prices could fall 5 per cent this year, sharply revising its original forecast of a 25 to 30 per cent drop.

"Residential prices have been holding up due to a delayed US interest rate expansion and a less-than-expected impact of rising primary supply on secondary prices," Ngai said.

While prices of new homes have fallen, those of second-hand homes have shown resilience. This has narrowed the premium of primary home prices over secondary ones.

The current residential rental yield in Hong Kong stands at about 2.9 per cent, close to the US 10-year treasuries yield of 2.5 per cent. Home prices will come under pressure only if the yield on treasuries, considered a low-risk investment, rise above 3 per cent, according to Ngai.

He said the outlook of the market next year would be determined by interest rate movements and treasury yields. If residential yield rises by 15 basis points and assuming flat growth in rents, residential prices could fall by 5 per cent, he said.

Ngai said the supply of new homes will be concentrated in a few districts like Yuen Long and Tseung Kwan O.