Prices of new homes are likely to ease in the second quarter, reversing a run of increases, as transaction volumes and price growth continue to moderate.
Deal volume and value in the primary market peaked in October last year, with growth at 87 percent and 150 percent, respectively.
Historical data shows that when primary transaction volume and value both fall, prices of new homes reverse course within six months.
Meanwhile, home prices in the secondary market have been hitting new highs.
Centa-City Leading Index, a weekly gauge of contract prices by Centaline Property Agency Ltd., is up 1.73 percent week on week to a record 136.35.
The increase has been largely led by properties on Hong Kong Island and Kowloon rather than in the New Territories.
As of Feb. 1, temporary transactions on Hong Kong Island and Kowloon were up 3 percent and 4.1 percent, respectively, from the previous week, outstripping marginal growth in the New Territories.
It remains unclear whether the property boom has gone beyond so-called starter homes into pricey flats in downtown areas.
Purchases have been mostly for starter homes and new homes since the end of the Asian financial crisis.
Last year, contracted deals were nearly 17,000, the highest since 2007.
New home sales soared to a record HK$176 billion (US$22.7 billion), accounting for more than 40 percent of all transactions, the highest in a decade, according to Land Registry data.
Meanwhile a rally in starter home prices has picked up in recent months.
The price premium between Taikoo Shing and certain starter home estates continued to narrow in the past month.
For example, the price difference between Taikoo Shing and Sun Tuen Mun Centre and Sha Tin Centre has fallen to 115 percent and 23 percent, respectively, down 5.1 and 2.1 percentage points from the previous month.
That shows the frenzy over starter homes is about to end, with the price gap between estates near the historical bottom.
However, there is rising risk of possible government intervention.
Already, the government has taken action three times after the last financial crisis to tame a property price bubble.
That was when prices in the secondary market had risen 10 percent, 13 percent and 12 percent, each time prompting intervention.
In the past six months, prices have increased 10 percent, which means the government might unveil further cooling measures anytime soon.
That said, property prices should stabilize this year.
This article appeared in the Hong Kong Economic Journal on Feb. 11.
Translation by Julie Zhu
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