The return of Hong Kong’s residential property bull market tests the city government’s policy response to tame runaway prices

Sandy Li
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The return of Hong Kong’s residential property bull market tests the city government’s policy response to tame runaway prices

The prices of Hong Kong’s pre-owned homes rose 2.9 per cent in March from the previous month at their fastest monthly pace in about three years, as the city’s government struggles with policy responses to keep runaway prices in check.

The price index of pre-owned homes rose to 377.5 in March, according to Rating and Valuation Department data. Prices have risen by 5.04 per cent in the first quarter of 2019 in a three-month rally, recovering from a 9.2 per cent decline from August to December last year. The last time the price of lived-in homes climbed by a similar magnitude was in September 2016, when the gauge rose by 3.1 per cent.

“Buyers’ attitude towards the property market has taken a U-turn. The overall sentiment has improved,” said Ricacorp Properties’ research head, Derek Chan. “There is not much supply in the market for used home to match the pent-up demand by buyers, so that’s why prices have been pushed higher.”

The leader of Hong Kong’s government, Chief Executive Carrie Lam Cheng Yuet-ngor, on March 21 expressed concerns about the city’s housing affordability, as dovish monetary policy rekindled a cooling property market.

“It does worry [me] because housing prices have already become very unaffordable, and they will become even more unaffordable if the reverse that we have seen since January this year is going to continue in the foreseeable future,” she said on the sidelines of the Bloomberg Invest Asia 2019 conference in Hong Kong.

Lam added a failure to effectively handle Hong Kong’s housing problem would undermine her achievements as the city’s leader.

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Apartments smaller than 430 sq ft have seen the largest growth at 3.12 per cent. “When the market turns, small to medium sized flats will have a bigger change because their values are lower and more people in the market can afford them,” Chan said.

But he said the growth next month may slow down to 2 to 2.5 per cent after touching the 3 per cent threshold.

“The March figure is 4.38 per cent below the peak,” said Chan. “It may hit the peak in May or June. It may mark a new high in the first half of this month.”

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The spike in the latest data has made some analysts change their tune. Thomas Lam, executive director of consultancy Knight Frank, raised his estimate of home price movement from a drop of 10 per cent to no change.

“The rise was higher than expected. The US seems unable to increase interest rates. The [local] economy is not bad,” said Lam. “If home price continues to rise in future, the government may impose more cooling measures. Now, we are certain the government will not take any measure.”

The housing market witnessed a sales rebound in March, with total residential sales volume soaring 27.9 per cent month on month to 5,231 units, making it the first month to see more than 5,000 monthly transactions since July last year, according to Knight Frank.

On Saturday, homebuyers flocked to the sale of a residential project in Tai Po even after the developer priced the apartments 4.1 per cent higher than a January offering, indicating rising real estate prices in Hong Kong.

But Denis Ma, head of research at JLL, remained cautious and said prices are likely to end the year 5 to 10 per cent lower and he would not expect any additional measures at this stage.

“Though the housing market has shown signs of improvement, we still see significant headwinds amid a slowing global economy,” Ma said. “I think that there is still a high degree of uncertainty in the market outlook, especially given that the global economy is slowing. It would be unwise for the government to intervene at this stage.”

Financial Secretary Paul Chan on Sunday said the economy improved marginally at 1.3 per cent in the last quarter of 2018, its most sluggish pace since 2016. The US-China trade war and other factors have eaten into Asian economies, but Chan said there were “some positive signs”.

Global uncertainties have continued to dent leasing demand for grade A office space in Central. In the retail sector, sales in February were disappointing, reflecting a cautious consumer sentiment, according to Knight Frank.

Share in Hong Kong property developers fell on Tuesday, on concerns the government may propose fresh policies to curtail home prices, which would erode their earnings.

Sun Hung Kai Properties, the city’s biggest developer by value, fell by as much as 0.9 per cent to an intraday low of HK$135.1 before closing at HK$135.4, down 0.6 per cent. CK Asset Holdings declined by 1.1 per cent to close at HK$63.

New World Development, which builds shopping centres and luxury apartments, fell by as much as 1.4 per cent to an intraday low of HK$12.92 before closing at HK$12.98, down 0.9 per cent.

The number of negative equity cases, which means some property values have dropped below outstanding mortgage loans, plummeted 83 per cent to 44 at the end of March this year from 262 cases at the end of December last year.

 

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