Hong Kong home prices stay firm on high building costs, strong demand

High construction costs and strong demand are seen keeping property prices high although new private housing supply over the next three to four years is set to push inventory to an eight-year high, analysts say.

Figures from the quarterly report of the Housing Authority show that there is expected to be 73,000 flats available for sale by 2018. The housing supply included unsold units in completed projects, units under construction, and those ready to start construction. It means new housing supply could reach 18,250 flats every year, close to the government's target of 20,000 annually.

"Housing supply is only one of the factors affecting property price movements. Since the construction cost continues to increase, developers would be reluctant to cut their asking prices significantly. Also, the housing demand is strong," said surveyor Albert So Chun-hin. "But the increasing new housing supply could stop strong growth in property prices."

Property prices would only ease slightly, unless interest rates rose sharply or if an economic crisis flared again.

Centaline's Centa-City Leading Index of mass residential property, which tracks prices at 85 housing estates across the city, fell 0.14 per cent to 121.95 last week, near its 2013 market peak.

Over the last few years, the government has been trying to cool the overheated property market by increasing land supply.

Although the number of flats which have started construction declined by 46 per cent to 4,300 in the second quarter, flats that began construction in the first half are already equivalent to 87 per cent of the 14,100 flats in 2013. Most of the flats would be completed in three years.

The quarterly report showed that the number of units completed in the second quarter increased to 4,600, up 59 per cent from the 2,900 flats completed in the first quarter.

The number of flats completed in the first half is equivalent to 90 per cent of the 8,300 total completed flats in 2013.

The government previously forecast there would be a total of 17,610 flats completed this year. If the target is reached, it will be the highest since 2004.

"Property prices will be flat, even though the housing supply is increasing," University of Hong Kong real estate professor Chau Kwong-wing said. "Interest rates are unlikely to increase in the short run. And there is no breakthrough for the government in increasing land supply in the short term."

He said mainland buyers have started to come back to the market in recent months, raising the prospect of the government applying higher stamp duties for these buyers.