Property developers will struggle against a headwind after a favorable first six months, as such investors are suggested to take profit on Hong Kong real estate companies, CLSA Asia-Pacific Markets, a Hong Kong brokerage said when releasing a report on the Hong Kong market on Monday.

Volume and prices of housing transaction are set to weaken in the fourth quarter, presenting an inflation point for Hong Kong developers after share prices went through an 18-month climb.

"The optimism is actually more significant on the massive market than the luxury residential market. The luxury prices have barely moved but the massive end has moved up sharply. That's quite unusual," said Nicole Wong, CLSA's regional head of property research, citing the result of a most recent survey done by the Hong Kong Property Services that about 40 percent of the 178 surveyed buyers are expecting residential prices to go down.

The luxury end market, which is driven by more experienced homebuyers and investors, is a good indicator of the market lookout.

Market correction is predicted to take place as the red flag is raised like the US treasury yield expectation seems way too complacent, Wong said, adding that market consensus expects treasury yield to rise by less than 2.25 percent in the next five years.

While supply pressure is rising, momentum in pent-up demand is fading, as a volume of more than HK$92 billion transaction has been achieved year to date, out of usual HK$110 billion per year.

In the meantime, developers' pricing power will further weaken and they have to deal with climbing labor cost. Daily salary of construction workers reached new high of HK$1,700 in the past year. "Profitability would be rather depressed," Nicole said.

"In the first half-year of 2014, we also saw a misunderstanding about the government's attitude to price," Wong said, adding that the Double Stamp Duty was read as policy easing.

selena@chinadailyhk.com

(HK Edition 09/16/2014 page8)