Rate-hike fears set to dent Hong Kong prop­erty sec­tor

China Daily (Hong Kong) - - HK | BUSI­NESS - By LIN WEN­JIE in Hong Kong cher­rylin@chi­nadai­lyhk.com

Prop­erty prices in Hong Kong are ex­pected to drop steadily in the com­ing years, hit by a pro­posed new stamp duty, as well as a pos­si­ble US in­ter­est-rate hike soon, ex­perts say.

How­ever, an­a­lysts point out that solid res­i­den­tial de­mand from both Chi­nese main­land and Hong Kong res­i­dents will con­tinue to prop up the lo­cal mar­ket.

Bank of Amer­ica Mer­rill Lynch (BOAML) pre­dicts that Hong Kong homes prices will fall by 5 per­cent next year. The city’s sec­ondary prop­erty prices are fore­cast to slump a cu­mu­la­tive 20 per­cent in the next three years, end­ing a 13-year up­surge from 2003 to 2016.

The Centa- City Lead­ing Inde x, an in­di­ca­tor of sec­on­dar y pri­vate res­i­den­tial proper ty prices, rose to 144.47 dur­ing the week be­tween Nov 21 and 27 — up 0.27 per­cent from a week ear­lier, but is slightly lower than the all-time peak of 146.92 recorded on Sept 13.

“Higher US in­ter­est rates and the de­pre­ci­a­tion of the ren­minbi, which has drained pur­chas­ing power from the main­land, have con­trib­uted to the fall in prop­erty prices,” said Karl Choi, head of Greater China real es­tate re­search at BOAML.

“The nar­rowed homes price gap be­tween first-tier cities on the main­land and Hong Kong also make the lo­cal res­i­den­tial mar­ket less ap­peal­ing to main­land buy­ers,” he said.

The US bank an­tic­i­pates that the US Fed­eral Re­serve will start a faster hik­ing cy­cle in 2018 af­ter rais­ing in­ter­est rates this month, with one more in­crease next year. The de­ci­sion would mean higher mort­gage costs in Hong Kong as the Hong Kong dol­lar is pegged to the green­back.

The In­ter­na­tional Mone­tary Fund (IMF) also be­lieves that a steeper-than-ex­pected US rate cy­cle or tight­en­ing of global fi­nan­cial con­di­tions may have a big­ger ad­verse im­pact against a back­drop of high house­hold debt with float­ing rate mort­gages.

“With stretched val­u­a­tions, there is the risk of an ac­cel­er­ated price ad­just­ment should in­ter­est rates rise faster than ex­pec ted,” the lat­est IMF re­port said. “Al­though the fi­nan­cial sys­tem would be re­silient to such an ad­just­ment, there is a risk to the real econ­omy from an ad­verse spi­ral of neg­a­tive wealth ef­fects, lower col­lat­eral val­ues, slower credit growth and weaker house­hold and cor­po­rate spend­ing.”

Global proper ty con­sul­tancy Knight Frank also said in its Dec 1 re­port that abun­dant sup­ply, the start of a US rate-in­crease cy­cle, the main­land’s eco­nomic slow­down and lo­cal pol­icy un­cer­tain­ties may drag down mass res­i­den­tial prices by 5 per­cent next year. How­ever, prices for small-sized apart­ments and su­per-lux­ury houses will surge 5 per­cent due to strong de­mand.

Knight Frank se­nior di­rec­tor Thomas Lam said the mar­ket should brace it­self for an ag­gres­sive in­ter­e­strate hike in­stead of a mod­er­ate one. “For ex­am­ple, a 50-ba­sis point in­crease in the mort­gage rate will only lift the monthly mort­gage pay­ment by HK$1,000 for ev­ery HK$4 mil­lion bor­rowed,” he said.

Lam said the 15 -per­cent rise in the stamp duty rate is ex­pected to sup­press in­vest­ment de­mand and trim the trans­ac­tion vol­ume of res­i­den­tial sales, which is very “un­healthy ” for the de­vel- op­ment of the sec­on­dar y prop­erty mar­ket. But, due to strong end-user de­mand and a ro­bust pri­mar y marke t, there will not be a prop­erty mar­ket crash, he reck­oned.

The strong back­ing power for the sec­on­dar y marke t partly comes from the main­land, es­pe­cially for su­per­lux­ury homes, be­cause of the scarcity of stock and Hong K o n g ’s a tt r a c t i v e n e s s f o r the su­per-rich, ac­cord­ing to Knight Frank.

Sta­tis­tics from Knight Frank show that among the pri­mary lux­ury sales worth over HK$30 mil­lion ex­e­cuted dur­ing the first 10 months o f t h i s y e a r, 2 7 p e r c e n t in­volved main­land buy­ers. This in­creased to 47 per­cent if only the top 30 deals dur­ing the pe­riod are cal­cu­lated.

B OA M L f o r e c a s t s a d d i - tional hous­ing de­mand from 2018 to 2022, of be tween 3,000 and 4,000 units, due to an es­ti­mated 18,232 main­land im­mi­grants who will be el­i­gi­ble for Hong Kong per­ma­nent res­i­dency through the Cap­i­tal In­vest­ment En­trant Scheme. This could mean a one-time boost for the mar­ket with new sup­ply of an es­ti­mated 18,000 to 20,000 units.

Mean­while, in the pri­mary mar­ket, main­land devel­op­ers have been in­creas­ingly ac­tive in res­i­den­tial land ac­qui­si­tions in Hong Kong, in an at­tempt to hedge against the de­pre­ci­a­tion of the ren­minbi. So far this year, more than 30 per­cent of res­i­den­tial land has been snapped up by main­land devel­op­ers in terms of de­vel­opable gross floor area. Be­sides the main­land’s back­ing power, solid de­mand from Hong Kong res­i­dents will push up prices of smaller apart­ments.

“As for af­ford­abil­ity, more and more mini- to small­sized apart­ments will be

The nar­rowed homes price gap be­tween first-tier cities on the main­land and Hong Kong also make the lo­cal res­i­den­tial mar­ket less ap­peal­ing to main­land buy­ers.” es­ti­mated de­crease in Hong Kong’s homes prices in 2017, ac­cord­ing to Bank of Amer­ica Mer­rill Lynch


of the top 30 sales of lux­ury prop­er­ties in Hong Kong’s pri­mary mar­ket dur­ing the first 10 months of this year in­volved Chi­nese main­land buy­ers


in­crease in the weekly Cen­taCity Lead­ing In­dex be­tween Nov 21 and 27 from a week ago

launched in the next few years and prices will con­tinue to rise,” ac­cord­ing to Knight Frank.

Knight Frank fore­cast a 5 to 10-per­cent growth in res­i­den­tial prop­erty prices next year.

Its re­search shows that small units will likely re­main the marke t foc us, with 36 per­cent of new apart­ments to be pro­vided be­tween 2017 and 2019 be­ing of less than 430 square feet in area, com­pared to 30 per­cent in 2015.


Prop­er­ties in Wong Tai Sin, Kowloon — one of Hong Kong’s most densely pop­u­lated dis­tricts. De­spite signs of the lo­cal prop­erty sec­tor wan­ing, lo­cal res­i­dents’ in­elas­tic de­mand for smaller apart­ments is be­lieved to be the mar­ket’s key sup­port­ing fac­tor amid global un­cer­tain­ties.

Karl Choi, head of Greater China real es­tate re­search at Bank of Amer­ica Mer­rill Lynch

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