Hong Kong banks slash property valuations as home market teeters

[HONG KONG] Banks in Hong Kong are aggressively cutting property valuations as the city's housing market weakens, threatening to fuel a downward spiral in prices, according to brokerage CLSA Ltd.

"The banks' assessment is often a self-fulfilling prophecy, as lower valuations will mean less lending," analysts led by Nicole Wong wrote in a note Tuesday.

Hong Kong Chief Executive Carrie Lam is set to unveil measures Wednesday aimed at countering the housing crisis in a city that's topping global rankings for bubble risks and the least-affordable homes. The CLSA note adds to a drumbeat of bearish commentaries as rising interest rates threaten to drag down property prices that have been on a bull run for most of the past 15 years.

Lam will focus on measures to boost supply, including converting industrial buildings into residential housing, building on farmland and reclaiming land from the sea, CLSA predicts.

"The government may also convert some private land supply into subsidized housing to take bigger control of housing supply," the analysts wrote. "Any more dramatic measures would be taken negatively and deepen the current price correction."

Recent market weakness has included a 1.6 per cent decline in secondary home prices last month and a sharp dip over four months in a Centaline Property Agency valuation index, which reached the lowest level since 2015 in September, the analysts said.

UBS Group AG last month named Hong Kong as leading a Global Real Estate Bubble Index of 20 major centers.

BLOOMBERG