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UBS sees HK home prices falling
May 11, 2012
The sharp rise in home prices this year has scared off buyers and is unlikely to be sustained, UBS analyst Eva Lee says.
"There were about 8,000 transactions in the secondary market in March. But the figure declined to around 6,000 in April," said Lee, head of Hong Kong and China property research for the investment bank. "The drop in sales volumes shows the market can't accept current prices, which are already up by 6 per cent so far this year. That price surge cannot be sustained."
A fall in mortgage rates of close to half a percentage point after the Lunar New Year holiday helped drive a recovery in both prices and sales volumes, UBS said. The rise in prices was seen mainly in the secondary market, where prices returned to their previous peak of 2011.
In the market for new homes, some developers were offering flats at prices below those for nearby flats in the secondary market to entice buyers.
UBS quoted government estimates that 14,000 new flats would be available for pre-sale this year, up from 10,000 last year. In addition, the government has set an annual target of providing land sites that can support the construction of about 20,000 flats. Lee said she expected developers to lower the prices of existing projects to clear inventories and raise funds for new land acquisitions. That, combined with uncertainty over what policies the incoming administration of Leung Chun-ying will introduce in July, could see prices stay flat or fall by up to 5 per cent this year, depending on the economic situation, she said. The forecast applies to both mass-market and luxury homes.
UBS sees a slight improvement in office rents for the rest of the year. It has revised down its earlier forecast of a 20 per cent decline to one of between 10 and 15 per cent. "Office rents should offer better yields due to lower new supply and vacancy in the current cycle," it says.
Lee said some tenants were relocating from Central to other districts because of high rents.
It expects no growth in retail rents in urban areas but growth of up to 5 per cent in suburban areas.
Meanwhile, the biggest landlord in Central, Hongkong Land, reported the vacancy rate in the group's office portfolio in the district grew to 3.6 per cent at the end of last month, compared with 2.9 per cent a year earlier.
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