‘Squeezed out’ Hong Kong homebuyers want into market

HONG KONG: Jian Sihua is counting on the Hong Kong government to create an opening for him in a property market where prices have climbed 28% this year.

The 39-year-old marketing professional said he was “too slow” at the start of the year when prices started surging and was “squeezed out” by speculators, including rich mainland Chinese. Henderson Land Development Co said Oct. 14 it set a global record selling an apartment for HK$88,000 ($38,836) per sq ft, on a net area basis.

The price jump has sparked a public outcry over housing costs, increased pressure on Hong Kong’s government to increase land supply and prompted the International Monetary Fund to warn this week of a possible bubble. Financial Secretary John Tsang said on Nov 4 the government was “very concerned” about the “sharp” rise. Credit Suisse AG expects speculation about official intervention to reduce prices 8% by year’s end.

“I got really frustrated because of the punters, people who buy up houses without even looking or negotiating,” Jian said in an interview. “I hope the government will also take measures against punters and foreign money that squeezed out genuine buyers like me.”

Others share that sentiment. Dozens marched on government offices calling on Chief Executive Donald Tsang to address property prices, Radio Television Hong Kong reported Oct 25.

Tsang’s cabinet signalled it may release more land to balance supply and demand. The government and MTR Corp, its subway operator, are the biggest suppliers of building sites in Hong Kong, a city of seven million people in 1,104 sq km where area available for building is limited by mountainous geography.

The Hong Kong Monetary Authority, the city’s central bank, on Oct 23 tightened down-payment requirements for luxury homes for the first time since 1991. On the same day, the Hong Kong Mortgage Corp, a government-backed home-loan insurer, said it would limit coverage and suspend insurance for rental properties.

After those changes, residential transactions at 10 of Hong Kong’s biggest projects fell to 37 the weekend of Oct 31 from 53 a week before, with the average price dropped at four locations, Centaline Property Agency Ltd said. The figures exclude new apartments. Louis Chan, Centaline’s general manager of residential properties, said the decline was the biggest in about four months.

Record sale prices of luxury homes led sellers of cheaper residences to “mistakenly believe that there will be at least a 10% to 15% gain in their properties,” said Francis Wong, a professor in the Department of Building and Real Estate at the Hong Kong Polytechnic University. “They started asking for higher prices and many potential buyers couldn’t afford them anymore.”

Record-low mortgage costs, near-zero interest rates on savings deposits and a depreciating currency have led home prices in Hong Kong to recover faster than those in New York and London. Buying from mainland Chinese hungry for fixed assets outside China also fuelled luxury property values.

Rising prices helped the Hang Seng Property Index that tracks six of the city’s listed developers gain 63% this year, making it the best performing industry group on the local benchmark.

The IMF said Nov 3 it shares the Hong Kong government’s concerns that there could be a sharp run-up in prices for property and financial assets and called for a “proactive and early” regulatory response.

“The government hasn’t done anything concrete, but it has made gestures to cool the sentiment and that’s made the market correct,” said Cusson Leung, a property analyst at Credit Suisse in Hong Kong.

While Hong Kong’s leaders have made repeated comments about high prices, history may make them cautious. At the height of a bubble in 1997, the year the UK returned Hong Kong to China, the government pledged to supply 85,000 homes a year. The year after, prices tumbled in the Asian financial crisis.

Billionaire Lee Shau-kee, Hong Kong’s third-richest man and the chairman of Henderson Land Development Co, said the mortgage measures “are not going to have much impact on luxury home prices.

“Most of those buyers are tycoons and don’t need to take up mortgages to buy,” Lee said Oct 29. Hong Kong is the fifth- most expensive residential real estate market, after Monte Carlo, Moscow, London and Tokyo, according to the Global Property Guide.

Prices of 120 sq m (1,292 sq ft) homes in Hong Kong’s city-center average US$16,125 (RM55,197) a sq m, compared with US$47,578 for similar apartments in Monaco, the most world’s most expensive residential market, Global Property Guide said on Feb 6.

Henderson’s record price came for an apartment at its 39 Conduit Road project. Lee, 81, reiterated the HK$439 million price for a duplex sold by Henderson Land was “100% real”.

That transaction added to concern among government officials about rising residential prices, a person familiar with the matter said.

Restricting mortgages may fail to deter mainland Chinese buyers whose wealth has been bolstered by stock market gains and a loan-fuelled economic expansion, said Xavier Wong, head of Greater China research at property consultant Knight Frank.

“Most mainlanders buying properties in Hong Kong are cash- rich,” said Wong.

Credit Suisse’s Leung said there is no bubble in mass-market homes. Even after this year’s gains, the Centa-City Leading Index is unchanged from March 2008 levels, he said. – Bloomberg LP

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