Residential buildings in Tung Chung. Analysts from Jones Lang LaSalle expect the sales volume of homes to remain low in Hong Kong. Jerome Favre / Bloomberg

Sales to remain low for rest of the year: Jones Lang LaSalle

Analysts remain cautious on the outlook for the Hong Kong residential property market after prices soared more than 70 percent since the beginning of 2009 to record levels.

"We do see some rising (property) market risks though they have yet to reach hazardous levels," said Joseph Tsang, managing director of Jones Lang LaSalle Hong Kong.

"In view of the higher down-payments now required for home transactions as well as the growing uncertainties in policy and macroeconomic risks, we expect sales volume to remain low for the rest of the year," Tsang said at a media briefing on Wednesday.

The Hong Kong government has imposed a series of austerity measures in the past 12 months in a bid to cool the overheating residential property market as the city's home prices have surpassed the previous peak of 1997.

During the first half of 2011, a total of 55,200 home transactions were recorded in Hong Kong - a 16 percent drop from a year earlier, which shows the combined impact from the implementation of the special stamp duty and the higher down-payment ratio set for potential buyers, said the real estate broker.

Luxury home sales also moderated in the first half after the government lifted their loan threshold, leading the volume of property sales at HK$20 million or above to decrease by 33 percent during the period.

However, the home prices of mass market residential properties and luxury properties have increased by another 10.1 percent and 16.2 percent during the first six months of 2011, respectively, due to rising household incomes, the low interest rate environment as well as tight home supply in the market, according to Jones Lang LaSalle.

Though the higher loan-to-value ratio restrictions introduced by the government has led to a comparatively quiet sales market and some local banks have started edging up interest rates for new mortgage loans, Tsang said he did not see a home prices slump in mass market residential sales.

However, Francis Cheung, CLSA head of China-Hong Kong strategy, on Wednesday forecast that the city's home prices will drop by 10 to 20 percent due to "external factors and likely sustained low transaction volume".

As early as April, Barclays Capital Asia Ltd released a report warning that the city's home prices are likely to fall as much as 30 percent due to mortgage rate hikes.

"While we do not expect a near-term correction, rising mortgage rates hold the potential for a price correction into 2012, driven by reduced affordability and purchasing power for new buyers," Andrew Lawrence and Jonathan Hsu, analysts at Barclays, wrote in the report.

In late June, Walter Kwok, the former chairman of Sun Hung Kai Properties Ltd, the world's biggest developer by market value, also forecast that Hong Kong's property prices will fall as much as 15 percent by the end of 2012 as the market had peaked.

Holding a relatively more positive view however, Simon Lo, executive director of research and advisory at Colliers International Asia, told China Daily that he anticipates the growth of residential prices in Hong Kong to slow to only 5 percent year-on-year in the next 12 months, down from the 15 to 20 percent growth rate seen in the past two years.

"Key reasons are the anticipated rise in mortgage rates and the banks' conservative mortgage lending policy in terms of property valuation and loan-to-value ratios," said Lo.

"Mortgage rates have risen by more than 150 basis points from its low point in the fourth quarter last year. However, given the prevailing negative interest rate environment, residential prices are unlikely to stage a major downturn at least in the next two quarters," Lo added.

litao@chinadailyhk.com

China Daily

(HK Edition 07/14/2011 page2)