Moody's Investors Service said on Monday that Hong Kong's property market, caught in a slump since the Asian financial crisis of 1997, appears to be finally poised for a sustainable recovery, leading already to improvements for the credit outlooks of some of its key real estate-related companies.

Macro-economic rebounds in Hong Kong and the United States and area-specific factors, such as expectations on supply, more visitors from the Chinese mainland and expected closer economic cooperation with the mainland are behind the rise, Moody's said ina new study titled Momentum in Recovery Leads to Improved Credit Outlooks.

"At the same time, Moody's assessment is that the impact of therecovery on each individual company's financial metrics exhibits significant variation," said Clara Lau, Moody's Vice President andSenior Credit Officer and author of the report.

"Companies with larger exposures to the retail rental sector are better positioned to benefit from the recovery," Lau says, adding: "Those with strong market positions, sufficient land banksand more varied property portfolios, diversified across sectors and locations, should also benefit as the impact that weaker sectors and sub regions exercise on their cash flows can be curbed."

The Hong Kong property markets began their corner turn at the end of the third quarter of 2003, led by the luxury apartment and retail property sectors, the study said.

Transaction volumes in both the primary and secondary residential markets surged significantly, but the agency expects the momentum to slow as pent-up demand is digested and investment yields record significant falls.

Nonetheless, save any unexpected events, Moody's expects the improved residential market to continue with modest price increments, supported by the ongoing positive macro-economic environment and favorable conditions in supply.

Lau added that the performance of the retail property sector has been encouraging, given the active level of sale and purchase transactions, as well as the improvements in rentals, especially for prime commercial areas.

The office leasing market has also stabilized as is evident in the improved occupancy rates, reductions in rent-free periods and other incentives, as well as a firming in rentals, the study said.

Given the expected decline in supply in the coming two years, Moody's anticipates office rentals to begin picking up as macro-economic improvements continue. The office leasing market is further pinning strong hopes on the business opportunities which will arise from the Closer Economic Partnership Arrangement between Hong Kong and the mainland.

However, Lau does express a cautionary tone: "Any volatility inHong Kong's external environment, particularly in the US and Chinese economies, or a significant surge in interest rates, coulddisrupt or even reverse the improving trends in its property markets."

Source: Xinhua