Greater China News
Published February 24, 2007

HK home prices see rising up to 15% this year

(HONG KONG) The property market looks set to pick up steam this year as the wealth effect of the buoyant stock market and wage rises enhance affordability, while appreciation of the yuan and the emergence of negative deposit rates improve the attractiveness of property investment, say investment banks, the Standard reported.

Residential property prices, excluding the high-end segment, are expected to rise up to 15 per cent, said Andrew Look, managing director and head of Hong Kong Research, Strategy and Product at UBS. 'From now to 2009 there will be a severe imbalance between demand and supply (in the residential market),' he said.

The delivery of flats will fall from 35,000 units in 2002 to 12,000 in 2009, while the market absorbed 24,521 units per year on average in the 1998-2003 period, Mr Look said.

Home prices rose less than 2 per cent for the mass market last year, due to wage stagnation. Because wages now seem to be rising, and the appreciation of the yuan is expected to lead to imported inflation, causing negative real deposit rates, the attractiveness of properties as an inflation hedge should be enhanced.

Another investment bank, Credit Suisse, also believes the property market will improve, with flat prices in the secondary market rising by 5 to 10 per cent. 'Particularly in the secondary market, both the volume and the prices will move up,' said Clifford Lam, managing director of equity research. He said that as there is a wide gap between prices in the primary and secondary markets, the affordability of new flats is not high.

But Mr Lam disagrees that the negative real rate factor will contribute much to property prices. 'The returns on rent fell to record lows. The expectation of negative interest rates has already caused the required return on rent to drop.'

The availability of other investment vehicles diverts attention from property investment, he said.