HK Property Sector Set To Grow Up To 30% In Next 12 Months

Source : The Business Times, November 10, 2007

Flow of cash into city and cheaper financing options fuelling growth

HONG Kong's property market is tipped to see growth of up to 30 per cent over the next 12 months amid a flow of hot money into the city and a favourable interest rate environment.

Looking up: A rise in real estate prices will narrow the gap between the luxury sector, which has been powering ahead over the past few years, and the lagging mass residential sector

This week saw HSBC cut its prime lending rate by a further 25 basis points to 7 per cent, following a rate cut only last week on the heels of one in the US. Other banks are expected to follow suit, fuelling a mortgage war among banks in the city.

As well as cheaper financing options for home buyers, the property sector is benefiting from a flow of cash into Hong Kong, in part due to an expectation that China will soon relax restrictions on capital inflows into the city.

This is expected to bring significant gains to Hong Kong's stock market, which has already risen 55 per cent over the past two months in anticipation of fresh fund flows by mainland investors.

This week, Standard & Poor's Equity Research outlined its bullish outlook on the residential property sector, reflecting what it sees as a return of confidence to the sector.

It cited recent record prices for luxury apartments, increased volume in residential transactions and the higher than expected bids for government land at auctions as indicators of confidence among developers and buyers.

The research arm of S&P said it expects a rise of 20 per cent to 25 per cent in the prices of residential properties over the next 12 months, as prices in large and small residential units remain well below 1997 prices.

But Colliers International director Ricky Poon believes property prices could increase by as much as 30 per cent. 'The market is very different from 1997,' he said. 'There's not too many people speculating.

'Also, some people have been playing the stock market and have come out - and are investing in the property market.'

He said he had recently revised upwards projections of a 15-20 per cent rise over the next 12 months.

This would narrow the gap between the luxury sector, which has been powering ahead over the past few years, and the mass residential sector, which had been lagging.

'The luxury sector has been going up a lot over the past two years,' Mr Poon said. 'It has even gone up by 10 per cent just in the past few weeks.

'Now I think the market is moving to the mass residential sector - so the gap will be narrowing.'

Adding to the 'feel good' factor in the property sector were figures this week from the Hong Kong Monetary Authority on the number of residential mortgage loans in negative equity - where the property is worth less than the sum owing.

The number of these mortgages fell by about 1,200 cases to 3,500 cases in the three months to the end of September. They had an aggregate value of HK$6 billion (S$1.1 billion).

It represents a 97 per cent drop from the peak of the negative equity phenomenon which was in June 2003, just as Hong Kong was recovering from the Sars outbreak and an endemic slump in property values since 1997.