A man walks past rental advertisements posted on the window of a real estate agency. Hong Kong apartment rents have risen quickly in the first quarter of this year, following the recent upward trend in home sales and prices. Hong Shaokui / China News Service

Appreciation of yuan may divert investment away from real estate: Credit Suisse analysts

On a day that the Hong Kong Monetary Authority (HKMA) warned home buyers about the risks in taking out mortgages, two experts in real estate offered pessimistic views on the outlook of the market.

HKMA Deputy Chief Executive Arthur Yuen pointed out two major risks when home buyers undertake mortgages. He said a potential rise in interest rates will increase the burden in monthly payments, and that the property market could be hurt if the inflow of funds is reversed.

Yuen denied that the HKMA, which supervises banks, has issued guidelines to individual banks on mortgage policies.

Meanwhile, one of the most high- profile property experts in town, Sze Wing-ching, chairman of major real estate agency Centaline, said there is already a bubble in the market, even though home prices have not reached the levels of 1997.

Sze said banks are really aggressive in fighting for the mortgage business, even more aggressive than the agents working for his firm. He added that the HKMA has not done enough to curb the bubble. He said some banks are raising the commission to staff in order to fight for more mortgage business.

However, investment bank Credit Suisse issued a report Tuesday that suggested that Hong Kong's residential property market will probably slow in the next two months as expectations grow that China will allow the yuan to appreciate.

A higher yuan may damp investment in Hong Kong's residential real estate because it would mainly benefit yuan-denominated assets, Cusson Leung and Joyce Kwock, Credit Suisse research analysts, said in a report. They maintained their "market weight" rating on the Hong Kong property sector.

"Mainland investment demand for Hong Kong dollar-denominated assets during a period of appreciation is likely to slow," Leung and Kwock wrote.

Hong Kong luxury home prices jumped 45 percent last year, real estate broker Savills Plc said.

"The residential market had a strong run in the first quarter of 2010 and we believe the price-growth momentum will slow in the next few months," Leung and Kwock wrote.

"Especially when the pressure of RMB appreciation is imminent, investment demand might shift from Hong Kong property to RMB-denominated assets," they wrote.

China may allow the yuan to appreciate to curb inflation while avoiding a one-time jump in value that could hurt exports, according to a Bloomberg News survey of 19 analysts. The median estimate in the survey is for the yuan to strengthen 3.1 percent to 6.62 per dollar by the end of this year.

Agencies - China Daily

(HK Edition 04/14/2010 page2)