Analysts change their tune, forecast an up to 15 per cent increase in Hong Kong home prices this year
- Record high deposits in Hong Kong banks as well as demand from new residents will drive rebound, says CLSA
- Home prices to rise by 10 per cent this year, says Citibank
If you have been holding out for a steeper drop in the prices of residential property in Hong Kong, you are in for a disappointment. Analysts – even those previously forecasting declines – are increasingly of the opinion that prices will bottom out by March. And then rise by up to 15 per cent by December this year.
Nicole Wong, regional head of property research at securities company CLSA, said the sheer amount of money deposited in Hong Kong banks as well as demand from new residents who no longer need to pay the buyer’s stamp duty, will drive the rebound.
Three makes a trend, as CLSA becomes third bank to forecast Hong Kong’s home prices to drop
“Last year’s correction was because of a slide in the stock market and the value of the yuan. But these factors have now stabilised,” she said. The company correctly predicted the correction last year – the Centa-City Leading Index dropped by more than 9.8 per cent from a peak in August 2018.
The low possibility of an interest-rate increase means Hongkongers will turn to property investment, said Wong. “Hong Kong’s total deposits are at record highs. With so much money, and with interest rates possibly not rising by the end of the year, returns will not be high. [Cash holders] will look for a way out,” she said.
Hong Kong’s bank deposits stood at HK$4.99 trillion (US$640 billion) by November 2018, according to the Hong Kong Monetary Authority. Wong said the total savings were 59 times the market value of new apartments sold last year.
She also said the buyer’s stamp duty, an additional 15 per cent duty imposed on non-permanent-resident and corporate buyers in effect in Hong Kong since October 27, 2012, applicable to about 20,000 mainland Chinese immigrants who settled in the city on work visas, will cease to affect this population. And this will unleash a sizeable “pent-up” demand for about 8,000 units.
Last year’s correction was because of a slide in the stock market and the value of the yuan. But these factors have now stabilised
Hong Kong’s benchmark Hang Seng Index has been on an overall uptrend since January 3, and the value of the yuan against the Hong Kong dollar has generally been rising since December 1.
The latest research by Citibank also backs the view held by Wong. “We expect home prices to bottom out in February or March, with pent-up demand unleashed since January, strong demand-supply imbalance and potential interest rate peaking driving homebuyers back to the market,” the bank said in a research note led by property analyst Ken Yeung.
The bank, which was the first to correctly forecast last year’s correction in Hong Kong home prices, also said: “Home prices will rise by 10 per cent … until the end of this year.”
Derek Chan, head of research at Hong Kong brokerage Ricacorp Properties, too said home prices will bottom out by March, but added that they would remain flat from April until June, and then rise by 10 per cent in the second half of the year.
He said a low unemployment rate and the shortage of land would drive this trend.
First sign of relief as analysts forecast Hong Kong’s residential property fever to break in second half
Lung Siu-fung, an analyst at financial services provider China Merchants Securities International, was, however, less optimistic and said home prices will only bottom out by June and then rise by 5 per cent in the second half of the year.
He said current market headwinds, such as the US-China trade war and a slowing Chinese economy, would prevail and drive this trend.
However, not all analysts believe home prices will rise this year.
Nomura is forecasting a 7 per cent decline, citing abundant supply from a variety of developers and room for price cuts.
“Most of the correction [will] be seen in the first half of this year and then [home prices will] stay flat in the second half of this year,” said Joyce Kwock, an analyst at Nomura in a report. “We expect 32,000 units for launch this year.”
This year’s launches reflect mainly the land acquisitions made in 2013-15, when the land prices were relatively cheap.”
Nomura also projected residential rents would fall by 5 per cent, and rental yield to mildly expand by 10 basis points to 3 per cent amid the property price correction scenario.
