Twin records for Hong Kong property flout bid to tame hot market

[HONG KONG] Hong Kong's property market is setting new records, quashing attempts by the city's leaders to tame surging home prices.

Existing home prices reached an all-time high in the week ended Feb 19, according to the Centaline Property Centa-City Leading Index, which tracks sales of secondary homes. In another sign of buyer demand, two Chinese companies bid a record HK$16.9 billion (S$3.09 billion) for a piece of waterfront land zoned for residential development.

"The market is hot right now," said Wong Leung-Sing, associated director of research at Centaline Property Agency, citing demand from end-users and investors.

"The government says interest rates will rise and the supply will increase, and there's no need to buy now, but nobody believes that."

The dubious milestones are the latest evidence that government attempts to bring prices down by imposing taxes have been thwarted by surging demand. They come at a sensitive time for Hong Kong leaders, ahead of a vote next month to elect a new chief executive for the city. Housing costs have dogged current chief Leung Chun-Ying over the course of his five years in power, with measures including new taxes in November so far falling short of the mark.

The Centaline gauge surpassed its previous high reached in Sept 2015, and has rebounded 16 per cent since home prices bottomed at the end of March. That's despite the fact that transactions involving existing homes have slumped since the government increased stamp duties for all but first-time local homebuyers in November.

Unintended Effect

The home-buying curbs imposed by the government have also had the unintended effect of stoking demand for newly built homes as fewer existing homes are coming to market. Developers, who've enticed buyers with tax rebates and loan offers, have seen brisk sales for new apartments.

The Hang Seng Property Index, which tracks the shares of 10 property companies, has climbed 15 per cent this year, compared with an 8.9 per cent increase in the Hang Seng Index.

The record price paid for land by the Chinese buyers is a signal that developers don't see home prices declining anytime soon. The purchase works out to about HK$22,000 per square foot for the land alone, which is more than prices of existing homes in the area.

Logan Property Holdings Co and KWG Property Holding Ltd beat 13 other bidders including Cheung Kong Property Holdings Ltd and Sun Hung Kai Properties Ltd, in the record government tender for a rare piece of land in Ap Lei Chau island. The area is linked to Hong Kong island by bridge, and was connected to the city's extensive subway lines in December.

'Bullish Signal'

"This is a very bullish signal, that the land price is more than completed property in that area," said Denis Ma, head of Hong Kong research at Jones Lang LaSalle Inc.

"People look at that and say that in the next couple of years pricing is going to be a lot higher."

Mainland buyers have been flocking to Hong Kong as a combination of surging prices and property curbs on the mainland make the city a more attractive alternative. For example, a unit of HNA Group Co last month outbid Hong Kong developers with a HK$5.5 billion offer for land in the former Kai Tak airport area, its third such purchase in as many months.

Hong Kong has the world's priciest property market, with home prices rising 370 per cent since a six-year slump ended in 2003. The lack of affordability has stoked discontent and has lessened Hong Kong's competitiveness with other Asian financial hubs like Singapore, which is popular among expatriates for its less expensive housing.

BLOOMBERG