Property Futures

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Downward correction in prices of real estate in Hong Kong to continue

Article:  how the market correction in Hong Kong affects real-estate investment

In February 2013 Hong Kong raised stamp duties and announced restrictions on housing loans in an attempt to cool down a real-estate market that has some of the most expensive residential property in the world.

According to Financial Secretary John Tsang,  “exuberance has regained momentum” in the Hong Kong market, and this is why stamp duties would be increased across the board for many buyers.

Hong Kong Real Estate Market Analysis

Hong Kong Property Market analysis

He added, “The risk of an asset bubble is increasing. If we allow the bubble to grow, in the end it will affect the macro economy and also the stability of the financial system. It will be very damaging to society.”

The increased stamp duties will not apply to Hong Kong residents who are first-time buyers. Low interest rates, a tight supply of housing and plenty of liquidity contributed to a 2% growth in real-estate prices in January and residential property prices have now grown by 120% since 2008.

Compulsory guidelines have been issued to banks to tighten loan-approval criteria for all commercial and industrial real estate and loan to value ratios have been lowered by 10% from the existing levels.

The measures are expected to depress demand and cut down speculation.

The outcome of the cooling measures

The government is confident that it has checked the meteoric increase in property prices, and, as a result, some of the biggest real-estate players are planning to launch initial public offerings for hotels, offices and other forms of real-estate assets.

Some others are slashing prices on luxury apartments to keep the demand strong.

They are expected to be successful with top end assets because of the following factors:

  • Demand is strong
  • Interest rates are low

The IPOs come after a hiatus of 2 years, during which developers preferred to hold on to their assets to cash in on rising prices.

Hong Kong market outlook 2013

The Hong Kong property market is going through an overdue correction.

There may be a small short term upside in prices because of the following factors:

  • Bullish sentiment in the equity markets
  • Quantitative easing
  • Diminishing demand
  • Further economic deterioration
  • Tightening measures
  • Meaningful increase in the housing supply in the next few years,

Experts predict a penalty 8.3% year-on-year increase in real growth for residential as well as other housing markets as the sub-sector continues to perform as in the first quarter of 2012 (which witnessed the highest growth for 10 years).

I also expect that the housing bubble will contract because of the large quantities of new land entering the market, making room for possible major new projects.

  • Trade prospects showed a sharp deterioration in the third quarter of last year and are beginning to look bleak.
  • It is possible that the Hong Kong economy may stabilize but is unlikely to see any significant recovery in exports.

The bottom line

All in all, there may be an opportunity to profit from short-term property price increases but the downward correction is likely to continue and you should watch the market closely if you choose to invest now.

In my opinion, you should stay on the sidelines and watch how things work out before considering any investment.


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