Published February 9, 2010

HK property market due for correction

Cheung Kong warns buyers to look out for a bubble amid an 'unusual rise'

(HONG KONG) The Hong Kong property market has risen too fast and buyers must look out for a bubble, Cheung Kong (Holdings) Ltd's executive director Justin Chiu said.

'The rise is a bit unusual,' Mr Chiu said in a Bloomberg Television interview yesterday. 'There should be a correction at some point.' Low mortgage rates and buying by rich mainland Chinese drove a 29 per cent gain in Hong Kong home prices last year. The city faces a 'huge' potential risk of bubbles forming in its asset markets as low interest rates and high liquidity drive up prices, Norman Chan, chief executive of the Hong Kong Monetary Authority, said last week.

Cheung Kong, controlled by billionaire Li Ka-shing, last month forecast luxury-home prices may rise 15 per cent this year, and those for new mass-market residences may climb 15 per cent to 20 per cent.

'House prices now are still almost 50 per cent below the 1997 high and affordable to households,' said Buggle Lau, chief analyst for properties at Hong Kong-based Midland Holdings Ltd. 'It is too early to call it a bubble.'

Hong Kong prices rose about 40 per cent from June to January, and buyers must not expect the same pace of growth in prices in 2010, Mr Chiu said. 'When people make their buying decisions, they should be cautious,' he said. 'Low interest rate environment will not last forever.'

Prices for luxury homes in Hong Kong, defined as those costing at least HK$10 million (S$1.83 million) or bigger than 1,000 square feet (92.9 square metres), may rise 20 per cent this year, real estate broker CB Richard Ellis Group Inc said on Jan 12. Prices for non-luxury homes may rise 15 per cent, it said.

The Hong Kong government has taken 'appropriate steps' to warn investors about overheating in the market and will increase land supply this year to curb gains in home prices, Mr Chiu said.

Hong Kong suspended scheduled land sales in November 2002 as real estate prices fell after the 1997-98 Asian financial crisis, the 2000 bursting of the dot-com bubble and the Sept 11, 2001, terrorist attacks. It resumed sales in January 2004, introducing a system of selling land through auctions only after developers promise to pay a minimum amount, part of an undisclosed reserve price.

Cheung Kong rose 0.6 per cent to HK$90.65 at the close of trading in Hong Kong. The shares climbed 37 per cent in 2009, underperforming the 66 per cent advance in the Hang Seng Property Index.