Hong Kong’s home prices may be entering a “bubble” amid a battle between surging liquidity and government efforts to cool the property market, JPMorgan Chase & Co said on Friday.
Residential real estate values-to-GDP has exceeded Honk Kong’s peak of 3.13 times in 1997 and may “overshoot” to 3.5 times next year based on the brokerage’s forecast of a 15 percent increase in home prices next year, analysts led by Lucia Kwong said in the report.
“This shows that economic growth cannot catch up with asset price growth or liquidity is likely to channel mostly into properties and little to other segments,” the report said. “The battle between policies and liquidity will continue in the next nine to 12 months.”
Hong Kong last month intensified a year-long battle to curb surging home prices with additional taxes and policies a day after the IMF warned that asset inflation may derail the city’s economy. Homes sold within six months of purchase will now incur a 15 percent stamp duty and down payments will increase for most mortgages, with those for homes costing at least HK$12 million (US$1.5 million) rising to 50 percent from 40 percent.
The government acted after home prices climbed more than 50 percent since the beginning of last year and surpassed a 1997 peak with record-low mortgage rates and an influx of Chinese buyers. Hong Kong’s currency peg to the US dollar prevents its de-facto central bank from raising interest rates.
Home transactions picked up -after a decline following last month’s government curbs, according to Centaline Property Agency Ltd (中原地產). The company handled 53 home sales over the weekend, a 61 percent increase from the previous week, it said in a press release on Sunday.
The measures show the government’s determination to stem rising prices, the JPMorgan analysts said.
“Cash-rich investors” who don’t rely on mortgage financing and plan to hold their properties for more than two years shouldn’t be affected, they said.
Funds from the US Federal Reserve’s plan to boost purchases of bonds may increase capital inflows and raise Hong Kong asset prices in the next year, they said.
The Hang Seng Property Index yesterday rose 1.3 percent at the 4pm close in Hong Kong, the most since Nov. 29. Sun Hung Kai Properties Ltd (新鴻基地), Hong Kong’s biggest listed developer, climbed 1.5 percent, and Cheung Kong (Holdings) Ltd (長江實業), controlled by Li Ka-shing (李嘉誠), the territory’s richest man, added 1.4 percent.
The property measure has fallen 3 percent since the government’s curbs on Nov. 19, more than double the 1.2 percent drop in the benchmark Hang Seng Index.
JPMorgan prefers office and shopping mall landlords to developers as retail sales during the year-end holiday season are expected to be good, helping to drive rents higher. Hongkong Land Holdings Ltd (置地公司), Hysan Development Co Ltd (希慎興業有限公司) and Wharf Holdings Ltd (九龍倉集團) are their top picks.
Grade A or prime office rents in the city’s Central business district will rise about 24 percent next year because of increased demand and limited new supply, CB Richard Ellis Inc said last week. Overall residential values are expected to climb 5 percent to 10 percent, CB Richard Ellis said.