Hong Kong housing market is starting to cool, Credit Suisse says

[HONG KONG] Hong Kong's property boom is quietening down, according to Credit Suisse Group AG.

The brokerage projects home prices in the city will rise 3 per cent this year, compared with 13 per cent in 2017, as the risk of higher interest rates and increasing housing inventory grows. Faster supply of new units will suppress price growth in the "mid-to-long run," said analyst Susanna Leung, advising investors favor developers with strong sales in recent years. Credit Suisse's top picks are CK Asset Holdings Ltd. and New World Development Co.

"Overall demand and price growth have been slowing down since 2017," Ms Leung wrote in a note dated Tuesday. Any increase in the prime rate will have "a wider impact as developers' financings are typically benchmarked to the prime rates," she wrote.

The Hong Kong dollar's one-month borrowing cost rose above 1 per cent in November for the first time since the global financial crisis, putting pressure on local lenders to increase the prime rate - a key measure that influences mortgage rates.

Supply of new units should reach 24,300 in 2018, 21 per cent above last year's level and 35 per cent above targeted levels, according to the note. That compares with 18,646 primary units sold in 2017, Credit Suisse said. Developers with farmland and older landbank should be less vulnerable to the impact of rising supply, Ms Leung wrote, while upgrading realtor Midland Holdings Ltd to neutral.

The ratio of mortgage payments to median household income hit 68 per cent in the third quarter, compared with a 45 per cent average between 1997 and 2016, according to Hong Kong's government.

BLOOMBERG