Share slide, global credit crunch could push property prices down, say analysts
(HONG KONG) Hong Kong's apartment transactions may fall to a 10-month low in July, then drop further, on concerns that accelerating inflation and a slumping stock market may push prices down, analysts said.
Pricey: Hong Kong has the most expensive luxury home prices in Asia - US$10,490 to US$14,780 psm, compared with US$12,510 to US$22,923 psm in Manhattan Transactions in 10 of Hong Kong's biggest housing complexes, used by many analysts as a benchmark, fell to 27 last week from 33 the previous week, Centaline Property Agency said. Total home sales in the city may drop to 6,100 in July, the lowest number since September, from 7,167 in June, it said.
'This will probably continue for the whole of the third quarter,' said Louis Chan, managing director of residential properties at Centaline. 'We're looking at between a 3 and 5 per cent correction in prices within the quarter.'
Home values have tracked Hong Kong's economy, peaking in the second quarter of 1997, then crashing in the Asian financial crisis, leaving many homes worth less than their mortgages for years. The 2000 dotcom bubble burst, the Sept 11, 2001, terrorist attacks and the 2003 Sars epidemic caused prices to fall as much as 70 per cent from the peak. The rebound started in late 2003 and prices doubled in the past four years.
Now, the benchmark Hang Seng Index has fallen almost a third from its record in October as credit-market losses climbed worldwide, threatening global economic growth even as inflation accelerates in Hong Kong. The combination could deter potential homebuyers, possibly for the balance of the year.
'The Hong Kong residential market will go into a quiet period for the rest of 2008,' said Cusson Leung, a Hong Kong-based analyst at Credit Suisse. His July 8 report forecast a 5 to 10 per cent reduction in home prices in the second half.
Overall housing transactions in the second half may fall between 20 and 30 per cent from a year earlier, said Patrick Chow, head of research at real estate agency Ricacorp Properties. 'Many people looking to upgrade their properties again have had their capital drained by the stock market,' Mr Chow said. 'This may seriously impact the high-end market, in part because many of those homebuyers had upgraded last year.'
Hong Kong's four biggest real estate agencies this month fired a total of more than 300 workers in anticipation of a housing slump, according to a July 23 report in the Hong Kong Economic Times.
Hong Kong's inflation accelerated in June to the fastest pace in four months as food and energy costs climbed. Local lenders including BOC Hong Kong (Holdings) and Hang Seng Bank last month raised their mortgage rates for some customers to deflect the squeeze on lending margins.
'Inflation is giving many people second thoughts about buying properties,' said Alnwick Chan, a Hong Kong-based executive director at property research company Knight Frank LLP. 'There's going to be a correction but it won't be a crash.' Hong Kong has the most expensive luxury home prices in Asia, US$10,490 to US$14,780 per square metre, according to the Global Property Guide website. That compares with US$12,510 to US$22,923 per square metre in Manhattan.
The Hang Seng Properties Index, which tracks the city's six biggest builders by market value, has dropped 30 per cent this year on concerns Hong Kong banks may lift rates.
The expectation that the US Federal Reserve will start raising interest rates in the fourth quarter of this year has damped Asia's stock markets, according to Credit Suisse.
Sino Land sold almost 70 per cent of the apartments it made available at the Palazzo, a high-end complex overlooking the Sha Tin horse track in the first nine days of sales, Sing Tao Daily reported in May. Billionaire Li Ka-shing's Cheung Kong (Holdings), Hong Kong's second-biggest builder by value, met full-year sales targets by June, selling 2,700 apartments for HK$23 billion.
Transactions and prices may rebound in the fourth quarter if both the US and Hong Kong stock markets show they have weathered the sub-prime crisis, Centaline's Mr Chan said.
The property affordability ratio, homeowners' average monthly mortgage payment as a percentage of income, is 32 per cent, 'a very healthy level' compared with 93 per cent at the peak of the 1990s boom, according to Buggle Lau, chief analyst at Midland Holdings Ltd, Hong Kong's biggest publicly traded property agency.
'Growth is definitely slowing, but the fundamentals of the economy are still strong,' Mr Lau said. 'When the uncertainties go away we're pretty sure buyers are going to come back.' Midland's shares have plunged 66 per cent this year, after nearly quadrupling between the beginning of 2007 and January. -- Bloomberg
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