HSBC: Property bubble warning for Hong Kong
August 09, 2010 - Hong Kong
Fears of a property bubble in China are receding but now analysts are warning that real estate prices are too high in Hong Kong.
A 42% surge in prices since the beginning of 2009 and predictions that they could rise another 10% this year is causing anxiety. ‘Property prices are at a fairly high level right now. If it continues it may form a bubble,' said Peter Wong, HSBC's chief executive officer for the Asia Pacific region.
Interest rates are at a two decade low and the local economy is growing so that prices are likely to continue upwards, according to consultants Jones Lang LaSalle.
All the local indices show a steady rise in prices. Centaline's index shows Hong Kong's home prices have increased 10.5% this year and the Hang Seng property index, which tracks seven of the city's biggest developers, has risen 11% in the past six months, compared with a 5.6% gain in the benchmark Hang Seng Index.
According to Nicole Wong, regional head of property research at CLSA, prices will rise another 15% in the next 12 months as limited supply forces buyers to pay more for real estate that is already expensive.
She said that the city's promising job market and growing wealth will help drive demand for real estate while supply doesn't increase much.
The actual price of properties is matched by soaring land prices with developers prepared to splash out in a city where land is in short supply. In June Sun Hung Kai Properties, the world's biggest developer by market value, bought a site in the Ho Man Tin district for HK$10.9 billion ($1.4 billion).
At HK$12,540 per square foot, it was the highest price paid in a government auction in urban Hong Kong since the market peaked in 1997.
The government last month sold a residential site in the city's luxurious Peak district for HK$10.4 billion in an auction it initiated to boost land supply.
It will sell two sites in the Kowloon area at auction on August 17 and a residential plot in Kowloon Tong district on August 31.
Most government land sales in recent years have been triggered by developers who promised to pay minimum prices for sites on a list of available plots under the so-called land application system. Regular government land auctions were halted in 2004 to support falling home prices.
Ronnie Chan, chairman of Hang Lung Properties, Hong Kong's third biggest builder by value, said last week that the city's home prices are already too expensive.
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