Hong Kong's pent-up property demand heralds price rebound

Hong Kong

THE outlook for Hong Kong's property market, the world's least affordable, has started to firm with some analysts predicting prices could rise as much as 10 per cent this year after only a short-lived correction.

Pent-up demand, expectations of slower interest rate rises and optimism Beijing and Washington will soon hammer out a trade deal, have combined to boost sales after prices drifted lower from mid-2018.

Total transaction volumes jumped 120 per cent in January to 4,355 sales from 1,963 in December, data from realtor Centaline showed.

The cooldown, which slowed a decade-long bull run where prices surged more than 200 per cent, had raised concerns that a sustained drop would hurt financially-strapped homeowners at a time of rising interest rates and economic uncertainties. But a rebound in prices means potential buyers will have only a narrow window to get a piece of the city's sky-high real estate, reigniting the challenges policymakers face in easing public discontent over rising costs and asset bubble risks.

Citi, among the most upbeat, sees prices rebounding from March. The brokerage forecasts prices could rise as much as 30 per cent in the next two years, with 2019 alone seeing a 5 per cent rise.

"There may be black swan events but it shouldn't change the long-term up-cycle . . . our market is in a serious shortage," said Ken Yeung, Citi's head of Hong Kong property research.

He estimated a total housing supply at 38,000 units on average per year until the end of 2021, falling short of a demand of 53,000 units per year.

"Property rebounds have been strong every time in the past because corrections are against the fundamentals," he added. "When a series of negative news happens, many people with real demand, for example the newlyweds, defer their purchases, creating pent-up demand. These demands don't vanish, they accumulate."

Hong Kong's private home prices fell for the fifth consecutive month in December 2018, down 2.4 per cent from November, official data showed. But prices still climbed 1.6 per cent for the whole of 2018.

If shares of local real-estate developers are a precursor of property trends, the Hang Seng's property sub index has surged around 28 per cent since October, returning to levels seen in June before US-China trade tensions intensified and sparked a market rout.

CLSA also expects the property market to rebound by up to 15 per cent from April to the year-end, as capital looks for investment opportunities and pent-up demand from mainland Chinese who are gaining their Hong Kong residency is unleashed this year.

Geoffrey Lo, general manager of developer Nan Fung Development, said sales in January were better than expected as activity is usually thin before the Lunar New Year.

But not everyone is as sanguine that prices are bottoming.

Justin Chiu, an executive director of CK Asset Holdings, a major developer, said he still expected home prices to fall 10 per cent this year due to uncertainties from trade tensions and as more homeowners confront negative equity - when a home loan exceeds the market value of the property. REUTERS