Limited supply has bolstered values, say property analysts
(HONG KONG) Investors waiting for Hong Kong home prices to fall to levels last seen during the 2003 severe acute respiratory syndrome (Sars) epidemic may be disappointed as limited supply bolsters values.
Falling supply: A Hong Kong building site where a billboard advertises new properties; completions of private homes in the next two to three years is expected to be 10,000-15,000 annually, below the 10-year average of about 23,000 unitsHome values have fallen as much as 25 per cent from last year's peak, as the city slid into a recession in the third quarter on declining exports and domestic demand. Still, prices are about 40 per cent higher than during Sars, mainly because the government has ended scheduled building-land sales, analysts said.
'Government policy was a driving force in the steep drop in prices between 1997 and 2003,' Buggle Lau, chief analyst at Midland Holdings Ltd, Hong Kong's biggest publicly traded property agency, said yesterday. 'Now, external factors are more severe, but internally, the situation is better as the government has continued to freeze supply.'
Home values have tracked the economy, peaking in the second quarter of 1997, then crashing in the 1997-98 Asian financial crisis. The 2000 dot-com bubble burst; the Sept 11, 2001, terrorist attacks and the 2003 Sars epidemic caused prices to fall as much as 70 per cent.
To support prices, the government, one of Hong Kong's largest suppliers of unoccupied land, suspended its scheduled land sales in November 2002. It resumed sales in January 2004, using a system where developers trigger auctions from a list of sites by promising to pay a minimum amount. The system will stay, Chief Executive Donald Tsang said in October.
Completions of private homes in the next two to three years will be 10,000-15,000 annually, below the 10-year average of about 23,000 units, Marcos Chan, head of research for the Pearl River Delta at Jones Lang Lasalle, said yesterday.
Home prices may bottom out in the second half of 2010, judging from the length of the 1997-2003 decline, Mr Chan said.
Hong Kong has the second- most expensive luxury home prices in Asia, after Tokyo, averaging US$16,125 per square meter (psm), according to the Global Property Guide Web site. That compares with US$20,756 psm in London.
An index of 73 apartment buildings developed by Centaline Property Agency Ltd doubled to a level of 72.8 in the first quarter of 2008 from the 2003 nadir on a booming economy and stock market, before dropping to 55 at the end of last year.
In 2003, when consumer spending fell and companies withdrew foreign workers due to Sars, the index fell to a record of 32. Prices were also soft because completions of non-government built new homes were at a three-year high of 31,052 the previous year.
The government policy has reduced supply; 8,776 private homes were completed last year, according to Hong Kong's Rating and Valuation Department, the lowest since records began in 1972, Centaline said. The government has not sold a residential site for more than HK$1 billion (S$194.1 million) since October 2007.
'The supply of homes right now is much less than in 1998 and 2003,' Raymond Ngai, a Hong Kong-based analyst at JPMorgan Chase & Co, said by phone.
Still, Hong Kong's home sales fell for a seventh month in January, slumping 67 per cent to 4,875, according to the government Land Registry. Mr Ngai forecast values to drop as much as 15 per cent this year, and Louis Chan, managing director of residential sales at Centaline, projected a 10 per cent decline.
The Hang Seng Property Index that tracks the shares of six developers in the city rose 2.1 per cent to 16,578.41 at 12.30 pm local time. It dropped 2 per cent this year, after losing 55 per cent in 2008.
'If the transaction volume rebounds to about 6,000 or 7,000 for three to four months, that would indicate that buying was pretty active' and sentiment may have stabilised, Midland's Mr Lau said. -- Bloomberg
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