Mixed pic­ture seen for SAR

China Daily (Canada) - - FRONT PAGE - By SO­PHIE HE in Hong Kong so­phiehe@chi­nadai­lyhk.com

The re­cent volatil­ity in the Hong Kong and main­land stock mar­kets, as well as an im­mi­nent in­ter­est rate hike by the US Fed­eral Re­serve will dim the mo­men­tum of the SAR’s hous­ing mar­ket and slow down the rise in home prices in the sec­ond half of 2015, warn an­a­lysts.

Vin­cent Cheung Kiu-cho, na­tional di­rec­tor of global real-es­tate so­lu­tions at Cush­man & Wake­field Val­u­a­tion Ad­vi­sory Ser­vices (HK), for one be­lieves there is no doubt that the stocks volatil­ity on ei­ther side of the bor­der will af­fect home sales in Hong Kong in the sec­ond half.

Speak­ing to the China Daily, Cheung es­ti­mated that trans­ac­tion vol­ume in the residential mar­ket will drop to be­tween 3,000 and 4,000 per month from the cur­rent level of 5,000 to 6,000, on less-tha­nen­thu­si­as­tic mar­ket sen­ti­ment. He ex­pects the price of small- to medium-sized homes to rise by another 4 per­cent in the sec­ond half, fol­low­ing a 6 per­cent growth in the first.

While lux­ury residential prop­er­ties priced be­tween HK$10 mil­lion and HK$30 mil­lion may see a small in­crease of 1 to 3 per­cent through 2015, lux­ury homes priced over HK$30 mil­lion are ex­pected to see their price tags go up by 5 per­cent, Cheung forecast.

Both main­land and Hong Kong in­vestors may have lost money on the stock mar­ket re­cently and are un­likely to be in the mood to shift their in­vest­ment into the prop­erty mar­ket right away, said Cheung.

Since hit­ting a peak on June 12, the Shang­hai Com­pos­ite In­dex had fallen by nearly 30 per­cent by last week and nearly $3.9 tril­lion was wiped off the main­land stock mar­ket.

In Hong Kong, share prices on July 8 plunged to a seven-month low in the big­gest one-day drop since the global fi­nan­cial cri­sis of 2008, as the rout on the main­land mar­ket ac­cel­er­ated and spread to ma­jor re­gional bourses, fu­eled fur­ther by the Greek debt cri­sis.

Home sales in the SAR dipped. The Centa-City Lead­ing In­dex, a gauge of sec­ondary pri­vate residential prop­erty prices, recorded a weekly drop of 0.29 per­cent for the seven days ended July 5.

Agents also re­ported a marked drop in week­end sales of first-hand apart­ments, and blamed the stocks tur­moil as well as a lull in new launches.

Aside from the stock mar­ket tur­moil, another fac­tor that may make in­vestors stay away is that re­turns from Hong Kong residential prop­er­ties is a less than at­trac­tive 3 per­cent or so, and with the US ex­pected to raise rates in the sec­ond half, costs of in­vest­ing in prop­erty are also set to rise, ex­plained Cheung.

Ac­cord­ing to Cheung, a 10 per­cent rise in the price of small to medium-sized homes is ac­cept­able.

“You need to take the in­fla­tion fac­tor into con­sid­er­a­tion,” said Cheung, ex­plain­ing that if the in­fla­tion rate for the year is 3 to 4 per­cent, the real price in­crease for small- to medium-sized prop­er­ties would work out to only about 6 per­cent.

He also forecast that, thanks to an in­crease in sup­ply of hous­ing units in the com­ing years and the prospect of the US en­ter­ing an in­ter­est rate hike cy­cle, the rate of home price in­creases in Hong Kong will con­tinue to slow down.

“Next year, the real price in­crease for homes will be be­tween 4 and 5 per­cent,” Cheung said.

Echo­ing Cheung was Joanne Lee, se­nior man­ager of re­search and ad­vi­sory at Col­liers In­ter­na­tional Hong Kong, who also be­lieves that the stock mar­ket tur­moil will have a neg­a­tive im­pact on buyer sen­ti­ment in the prop­erty sec­tor.

“The stock mar­ket has an im­pact on the wealth ef­fect. So when the stock mar­ket un­der­per­forms or is very volatile, it will change peo­ple’s per­spec­tives about their fi­nan­cial sit­u­a­tion,” said Lee.

“But the im­pact will be larger on sales of lux­ury residential prop­er­ties,” she forecast, es­pe­cially homes in tra­di­tion­ally up­scale dis­tricts and sized over 1,200 square feet (nearly 111.5 square me­ters), rather than mass-mar­ket homes.

Lee said the price of residential prop­erty in the mass mar­ket in­creased by 8 per­cent in the first half, and the whole-year fig­ure would be around 10 per­cent.

In the sec­ond half, buy­ers are ex­pected be more cau­tious, es­pe­cially with the US likely to in­crease in­ter­est rates, so the price in­crease in the sec­ond half will slow down, she said.

But Lee stressed that a dou­ble-digit growth in mass mar­ket home prices is still sig­nif­i­cant, and if the price in­crease crosses 10 per­cent, the gov­ern­ment may tighten the mort­gage rate again to cool down the mar­ket.

The out­look of Joseph Tsang, man­ag­ing di­rec­tor at Jones Lang LaSalle Hong Kong, re­flected that of Lee, as he told a press con­fer­ence that the stocks volatil­ity will have a greater im­pact on lux­ury prop­erty than on the mass mar­ket.

That is be­cause mass mar­ket cus­tomers are usu­ally first-time home buy­ers or fam­i­lies in need of up­grad­ing their apart­ments, which will pro­vide enough sup­port for con­tin­ued growth in the mar­ket.

Tsang ex­pects the US Fed­eral Re­serve to raise in­ter­est rates by 25 ba­sis points in the sec­ond half and fore­casts a 10 per­cent price growth for the mass mar­ket prop­erty sec­tor this year.

Prices of pri­vate residential apart­ments in Hong Kong hit a record high in May, ris­ing for the 14th month in a row, ac­cord­ing to latest data from the Rat­ing and Val­u­a­tion Depart­ment.

The pri­vate-residential hous­ing price in­dex rose to 298.4, which is 1.1 points or 0.37 per­cent higher than in April. Com­pared with May last year, the in­dex has climbed 20.6 per­cent and, in the first five months of this year, it has surged 7.2 per­cent.

In May, the price of small apart­ments, or those sized at 40 square me­ters or less, went up 0.52 per­cent from April, while the price of larger units, that is be­tween 70 and 99.9 square me­ter, rose by 0.4 per­cent month-on-month.

PHOTOS PRO­VIDED TO CHINA DAILY

Hong Kong home trans­ac­tions have dipped, but an­a­lysts see sev­eral vari­ables at play.

Joanne Lee, se­nior man­ager of re­search and ad­vi­sory Col­liers In­ter­na­tional HK

Na­tional poli­cies and mar­ket forces are big cat­a­lysts for Shen­zhen home sales.

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