22 January 2019
The residential market has fallen 15 to 20 percent from the peak, and is likely to slide another 10 to 20 percent this year. Photo: HKEJ
The residential market has fallen 15 to 20 percent from the peak, and is likely to slide another 10 to 20 percent this year. Photo: HKEJ

Is aspirin the cure for a soft property market?

The property market has made many billionaires in Hong Kong, and property agents who close the deals make millions in commissions.

Still, running a property agency these days may not be as glamorous as it used to be. Just look at the frequent howls of protest from the sector against the government’s housing policy.

Centaline chairman Shih Wing-ching has joined the chorus of property bosses calling for a relaxation of the government’s home purchase restrictions ahead of the financial budget. 

In driving home his point, Shih made an interesting analogy.

He said the government introduced the cooling measures at a time when there was a housing fever. Now that the fever is gone — actually, it has turned into a cold — there is no need for antipyretic medicine. 

Does that sound convincing?

I think it really boils down to what you think about the diagnosis of the local property market, specifically whether you want a short-term fix or a long-term cure.

This thing about housing fever reminds me of my friend, who was suffering from hypertension.

The doctor prescribed 10 mg of Norvasc every day. The medication worked magic.

So one day he asked his doctor if he should take a lower dosage. His doctor gave an emphatic “no” – because it was the 10 mg, not 5 mg, that stabilized his blood pressure.

The same is true with the housing market. The government, especially Chief Executive Leung Chun-ying who appears bent on winning a second term, wouldn’t want to take the risk of having another heated property market.

There are, of course, reasons why Shih is calling for a lifting of the property curbs.

According to Ratings and Valuation Department, the private residential index fell 7 percent in the fourth quarter from the all-time peak of 306.1 in September.

Most market analysts estimate that the residential market has fallen 15 to 20 percent from the peak, with another 10 to 20 percent downside likely to be seen this year.

Another compelling evidence is that home registrations fell to 2,045 last month, the lowest since records became available in 1996.

That would definitely hurt Hong Kong’s commission-based property agencies.

According to the Hong Kong Economic Journal, Centaline Property Agency Ltd. and its subsidiary Ricacorp together lost a record HK$60 million last month.

Centaline, the city’s largest residential agency, needs a monthly commission of HK$160 million to break even, but it has only managed to earn HK$40 million so far this month.

It seems unlikely that Centaline would want to get listed under such a lukewarm environment.

The market slump is hurting not just Centaline but the whole industry.

As of Feb. 15, the number of registered property agents fell to 37,468 from 37,568 at the end of 2015, marking the first decrease since 14 months ago. 

The plight of property agents may not be a great gauge of the real estate market because, more often than not, they are the first to suffer in a downturn and the last to benefit from a recovery.

Look at the share price of Midland Holdings, the only listed and second largest property agency in the city. It is currently trading at around HK$2.4, having fallen from a peak of HK$8 in 2010.

But 2010 was the year when the market was soaring, when an average two-bedroom flat had doubled in price in just five years. 

Despite the weakening sentiment, the home residential index only slid back to its level two years ago.

That’s why it’s OK for you to consider buying a home, but probably not the shares of your agent.

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EJ Insight writer

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