Roundup: Bullish Outlook for Hong Kong's Property Market Next Year

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Last updated at: (Beijing Time) Saturday, December 29, 2001

Roundup: Bullish Outlook for Hong Kong's Property Market Next Year

HK property market recovering

The series of measures taken recently by the Hong Kong SAR government to boost the local property market are taking effect and local financial analysts are optimistic about the future of private sector developers next year.

Anthony Wu, vice-president of property of Lehman Brothers in Hong Kong said the government's recent policy of limiting its sale of the government-built Home Ownership Scheme (HOS) flats to 9,000 for 10 months should alleviate the oversupply of flats in Hong Kong and prevent the further plummeting of property prices.

According to him, this year, about 13,000 HOS flats and 20,000 private developer flats had been sold, a total of about 34,000 flats, compared to the total about 32,000 sold in the year 2000.

"Such a policy (of limiting the sale of HOS flats) is most helpful in terms of reducing excessive supply. The demand for flats is always there. So with the government limiting the sale of its HOS flats, we expect at least 25,000 private developer flats can be sold next year," he said, adding a 20 percent growth in turnover in expected.

Performance of property market this year

Reviewing the performance of the property market this year, Wu said there has been a fall of 8 percent in property prices, with 5 percent attributable to the September 11 attack in New York.

Silvia Wong, analyst of Hong Kong property of DBS Securities concurred with Wu on the 25,000 private flats expected to be sold next year, she believed that the sentiments in the third and fourth quarter will be more bullish, as Hong Kong's economy should start to pick up by then.

With the total number of flats in the private developers' inventories amounting a total of 87,000 at the moment, presuming the level of demand of 25,000 private flats remains unchanged for the next three years, it will take three years for all the flats to be sold out, Anthony Wu said.

Prospect of property trading

On the prospect of property share trading, Silvia Wong held that the property share market has outperformed the actual property market this year due to the stimulation from a series of interest rate cuts.

The Hong Kong Trade Development Council recently issued a Hong Kong property market analysis report saying that as Hong Kong's economic integration with the Pearl River Delta progresses, its property prices in the short-term will continue to be affected by the low prices in the region.

"In the long-term, however, Hong Kong's property prices should be able to maintain a substantial premium, with its status as the regional financial service center that attracts a host of talents and its advantageous economic system," it said.

Measures to handle price dropping

The government recently took a series measures amid deterioration of the external economy and internal restructuring of Hong Kong's economy with home-buying desire being dampened and real estate prices dropping.

Such measures included a moratorium on all sales of discounted flats under home ownership schemes (HOS) for 10 months, while increasing the quota for home ownership loans by 12,000 to encourage the public to purchase flats built by private sector developers.

Another measure included the freezing of the earmarking of sites and allocation of new sites to the Housing Authority, in which construction is not yet commenced.

But population growth will fuel new demand in the long term, the report said. "The average annual growth of population in Hong Kong will be 120,000 by 2006. Taking the present average number of persons per household of 3.3, each year 36,000 residential units would be needed," it said.

Over the Christmas holidays alone, more than 800 new private residential projects change hands as buyers flocked to Christmas Day sales.

HK Property Market

Recent developments in global and regional financial markets have hurt sentiments in the Hong Kong property market. There are both negative and positive factors:

(a) New supply remains abundant, both from the public and the private sectors. Building activities and new building intentions have been maintained at a relatively high level.

(b) Demand is not very strong, given the rapid restructuring going on in Hong Kong (both in the public and private sectors), and the consequential effect on employment.

(c)The government is increasing the supply of subsidised loans to new home buyers or to people with low income. This increases demand.

(d) A very important element of demand, the upgrading demand, is hampered seriously by the drastic fall in prices during the Asian crisis.

(e) Consumer confidence in the US remains very strong, despite the fall in stock market prices in recent months. If US interest rates go up, Hong Kong will have to follow.

(f) The economy is slowly recovering, unemployment is coming down and wages/income are starting to improve. China's economy is doing well and the prospects for Hong Kong's economy to recover gradually remain good. Recent land auction results are reasonably good.

(g) In the primary market, the major property developers are all financially strong and they are not desperate to sell.

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