A tipping point or will the boom continue?

HONG KONG: Hong Kong's booming housing market has suddenly cooled after a range of government measures were announced last Friday, Aug 13. However, property analysts differ on whether the fall in sales will last for long.

Strong fundamentals — increasing incomes, low interest rates, tight new housing supply and inflation — are enough to support prices, some say. Others believe it may be a tipping point for the market.

"Which of the fundamental factors has turned?" said Eric Wong Chun-yu, a co-head of Asian property research at UBS, who is bullish on the market. "If the answer is none, you already have the conclusion."

Two sites in Ho Man Tin and Hung Hom were sold for a total of HK$7.61 billion (RM3.1 billion) on Tuesday, 20% higher than the market's expectation. This showed developers remain optimistic and expect solid growth in property prices.

Analysts believe the cooling measures, which include reducing the availability of mortgage loans for luxury and investment properties, will push down property sales and prices in the short term, but that these will pick up again.

Data from property agency Midland Reality show that about 223 flats at the 35 major housing estates monitored by the agency were sold from Aug 9 to 15. This was 26.6% less than the 304 deals recorded in the previous week, and was the lowest number of transactions in 11 weeks.

The company said the drop in property sales was sharper than in April when the government released its previous measures to cool the housing market. Weekly property sales dropped 14% at that time.

"The measures released last Friday are aimed at curbing property speculation and have dampened demand from investors," said Buggle Lau Ka-fai, Midland's chief analyst.

Samsung Securities analyst Lee Wee-liat expects transaction volume to decline significantly over the next two to three months as potential buyers stay on the sidelines with developers probably slowing property launches.

The brokerage expects home sales will drop 50% from the peak level in July, compared with a 37% fall from April's peak level after the earlier government measures were released.

However, with low interest rates, a property shortage expected to persist for the next two years, increasing numbers of mainland buyers and affordability healthy, he expects property prices will rise a further of 10% to 15% by the end of next year.

Cusson Leung, analyst at Credit Suisse, believes the new housing measures will dampen market sentiment in the near future. But if interest rates stay low, investors and home buyers would be active again, he said.

The government has imposed restrictions on confirmor transactions — resales before a purchase is completed — at new projects. However, confirmor transactions in new projects only accounted for 0.8% of total sales in the primary market in June. Hence, Leung believes the impact of the restriction on developers will not really amount to much.

But not everyone is optimistic.

Nicole Wong, regional head of property research at CLSA, believes this is a turning point for the Hong Kong property market.

"I'm surprised the government released a series of new cooling measures last Friday. They even raised the down payment for buying property, which is the first time in 16 years. The cooling measures are different from before. The government has showed its determination to cool the property market," she said.

In the near term, she believes, the impact on the market will be limited as the housing supply is tight and the job market is improving. But she has revised her forecast for prices.

She previously forecast property prices would rise a further 5% by the end of this year, but now she believes they will drop 6%.

"Home prices will only rise 5% next year. I forecast previously that prices will rise 10%," she said.

She expects property prices will enter a downward cycle in 2012 as a new housing supply begins to enter the market after a government decision to boost land supply this year.

David Ng, head of regional property research at Royal Bank of Scotland, agreed the new restrictions marked a tipping point for property prices.

"Property prices will not drop sharply because of the new measures. But I don't think home sales and prices will rebound significantly. The growth in salaries is moderate and it is not enough to support the significant growth in property prices," he said. — South China Morning Post