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HK home prices may fall up to 45%: Barclays

Published on Nov 2, 2011


HONG KONG: Hong Kong's residential property prices would drop by 35 per cent to 45 per cent over the next two years in the 'hard landing' scenario of a deflationary economic environment, Barclays Capital Research said.

In a 'soft landing', continued mortgage rate increases and a slowing economy would drive prices 25 per cent to 30 per cent lower over 2012 and 2013, Barclays analysts wrote in a report yesterday.

'Given the economic outlook, it is difficult to see property prices and transaction volumes reverting to their long-term relationship without a price correction,' the analysts said. 'The depth of that correction depends upon the external economic environment.'

Financial Secretary John Tsang said last week that the threat of a global economic slowdown is intensifying risks in Hong Kong's home market and the government will monitor housing policies designed to curb prices.

Home transactions fell for a ninth straight month in September, while prices declined 3 per cent from June to August, government statistics show.

Barclays' soft-landing outlook is based on a continued Hong Kong dollar liquidity 'squeeze' in the banking system that boosts mortgage rates for new borrowers. In this scenario, higher borrowing costs would price first-time buyers out of the market and discourage existing home owners from trading up, causing a 15 per cent to 20 per cent decline next year and a 10 per cent slump in 2013, as investors sell into 'weak demand'.

Under a hard landing, falling household incomes and home-buyer confidence would drive declines in residential property prices, along with a wider relaxation of mainland credit and a US dollar rally, Barclays said. A stronger dollar has historically been negative for Hong Kong property and stock prices.

BLOOMBERG