Hong Kong property prices could rebound if supply targets not met, says IMF

Hong Kong property prices have fallen in recent months but could rise due to concerns about a shortage of supply, the International Monetary Fund (IMF) said.

“While property prices are showing some early signs of levelling off, the propensity for further increases remains because of the underlying shortfall in supply,” the Washington-based IMF said after assessing Hong Kong’s economic development in consultation with the city’s government.

“Sustained efforts to ensure that the targets of the 2014 long-term housing strategy are met will be important for managing public expectations regarding supply and affordability.”

IMF suggested that adjustments to stamp duties could be considered if a sustained declining trend in transaction volumes is observed as that could adversely affect the broader economy.

Since the government imposed various extra stamp duties and increased new flat supply to curb price growth in 2012, home sales in the secondary market dropped to a two-year low at 40,872 last year.

The Centa-City Leading Index showed prices dropped 8.5 per cent as of January 10 from the peak in September.

Investment bank UBS has forecast home prices will fall 30 per cent from September 2015 to 2017, while others have predicted dips ranging from 5 to 15 per cent.

The slide comes after home prices soared nearly five-fold since June 2003.

Adjustment in property measures should be made based on evolving financial stability risks and not in response to demand developments, IMF added.

Law Ka-chung, chief economist and strategist at Bank of Communications Hong Kong , said the government is unlikely to ease the cooling measures until the downtrend is confirmed.

“Home prices have just started falling. There’s need for more time to observe how it goes,” he said. “I believe a fall of 20 per cent is what the government aims to achieve in this round of measures.”

Secretary for Transport and Housing Anthony Cheung Bing-leung has reiterated that measures meant to dampen property speculation will continue despite a slight dip in home prices in recent months and that the government would spare no effort to boost supply.

Directors of the IMF’s executive board said restoring demand-supply balance should continue to be a policy priority for the Hong Kong government, which needs to ensure that “public expectations about supply and affordability improve in a durable manner”.

The IMF forecasts that Hong Kong’s economic growth will pick up slightly to 2.5 per cent this year, compared with an estimated growth of 2.25 per cent last year, while inflation is projected to remain below 3 per cent this year on softer commodity prices.

The IMF has lowered its forecast for global economic growth over the next two years amid the deepening slowdown in emerging markets and a continued slump in oil prices.

It projects the world economy will grow 3.4 per cent this year and 3.6 per cent in 2017. That pace would be faster than last year, but the projections are 0.2 percentage points lower than IMF’s earlier estimate – a sign that the global recovery is still struggling to build momentum.

“Growth expectations seem to fall consistently,” said Maury Obstfeld, economic counsellor at the IMF. “I think the year coming is going to be a year of great challenges.”