Gloomy outlook for property prices in Hong Kong

HONG KONG: The lacklustre bidding for a Tseung Kwan O residential site on Tuesday shows that developers believe property prices will come under pressure over the next few years, analysts say.

Chinachem’s winning tender of HK$3 billion (RM1.23 billion) translates into an accommodation value of HK$3,653 per sq ft, the lowest in the area in more than three years.

About 4,000 flats in Tseung Kwan O are available for sale, Centaline Property Agency said.

Ken Lee Yuk-cheung, a sales director at the firm, said about 100 flat owners cut their asking price by 1% to 2% after the tender result was released and that around 20 cut their asking price by more than 2%.

“But the news was not so daunting as to make a majority of flat owners cut their asking prices,” he said.

Eric Yuen Chi-fung, the head of research at Guoco Capital, said the bidding reflected developers’ expectations for property prices three to four years down the road. “They believe property prices have downward potential, and so that’s why their offers were conservative,” he said.

“Chinachem is a private company and is under no pressure to publicly report its profit. Its offer was the highest of the developers. The others must hold a more negative outlook.”

Yuen said he believed developers were pessimistic because interest rates may rise as the US Federal Reserve moves closer to reducing its stimulus programme.

“Development costs will increase if interest rates rise,” he said. “As construction costs continue to rise and housing supply increases significantly, developers have turned conservative when acquiring land.”

Yuen said he expected property prices to drop, adding that how far they fall depended on the performance of financial markets. “It seems the government hopes property prices will fall 20%,” he said.

Charles Chan Chiu-kwok, the managing director of consultancy Savills, said he expected prices to drop 10% to 15% in the second half.

“Property prices face downward pressure, as property sales have stayed at a low level,” he said. “Flat owners will have to cut their asking prices to lure buyers, and prices of new homes will be affected by an increase in supply.” — South China Morning Post


This article first appeared in The Edge Financial Daily, on June 28, 2013