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HONG KONG: Barclays plc joined UBS AG and Bank of America Corp in forecasting a Hong Kong property slump, predicting home prices will fall at least 30% by the end of 2015 as income growth stalls and supply increases.
A “downward spiral of home prices is likely” as developers and homeowners adjust expectations, analysts Paul Louie and Zita Qin wrote in a report yesterday. They assigned a “negative” rating to the Hong Kong property sector and said office prices will drop 20%.
Barclays’s forecast exceeds the predictions of a series of brokerages that have downgraded Hong Kong property this month and implies the biggest plunge in prices since 1998. Hong Kong home prices more than doubled since the start of 2009 on record low interest rates and lack of supply, prompting the government to impose extra taxes and tighten lending restrictions.
“The magnitude of the fall is underestimated,” the Barclays analysts wrote.
The analysts are advising investors to sell eight of the 14 Hong Kong property companies they cover, including Sun Hung Kai Properties Ltd, the city’s second biggest builder, Swire Properties Ltd, New World Development Ltd and Wharf Holdings Ltd.
Cheung Kong Holdings Ltd, controlled by Li Ka-shing, Asia’s richest man, and Hang Lung Properties Ltd, which made more than 50% of its revenue outside Hong Kong in the first half, are the only two property stocks Barclays recommends investors buy.
The Hang Seng Property Index, which tracks nine of the biggest developers listed in the city, including Sun Hung Kai and Cheung Kong, has declined about 14% since peaking in January. It rose 0.5% as of 2:12pm local time.
“For prices to drop that much, you’ll need to have many bad things happening at the same time,” said Wong Leung-sing, a research director at realtor Centaline Property Agency Ltd, referring to Barclays’s forecast. “Judging from buyers’ reaction to the new projects this month, we haven’t seen that kind of sentiment.”
A new project developed by New World and Wheelock & Co in the Kowloon West area, on Oct 26 sold all 185 units within seven hours after they were put on the market, Sing Tao Daily reported yesterday, citing the developers. The units were sold at average prices of HK$22,000 (RM8,908) to HK$24,000 per sq ft, the report said.
New World is still seeing “strong demand” from homebuyers and has no plans to cut prices at its projects significantly this year, executive director Adrian Cheng said in an interview on Oct 21.
Buyers from mainland China, who accounted for as much as a quarter of home sales in Hong Kong at the peak in the fourth quarter of 2011, fell to 8% in the second quarter this year, according to Centaline. Hong Kong imposed an extra tax on home purchases by companies and non-residents in October 2012.
Developers in the first half sold 4,300 residential units, the fewest since the second half of 2008, after the government in February doubled stamp duty taxes on property transactions over HK$2 million.
To make up for the first half’s slowing sales, developers will need to cut prices to attract buyers, according to the Barclays analysts.
Prices will come under pressure as household incomes and residential rents peak, while housing supply is set to increase, the analysts said. Hong Kong’s average household income was little changed in the second quarter, while rents are “starting to hit the income ceiling”, they said. — Bloomberg
This article first appeared in The Edge Financial Daily, on October 29, 2013.
