Up, up and away: Is HK property still a good bet in 2015?

January 02, 2015 17:41
Shih Wing-ching of Centaline Property expects money from mainland China to keep pushing up property prices in Hong Kong in the first half of 2015. Photo: Bloomberg

Hong Kong's property market recorded an eye-popping performance last year. Second-hand home prices in the city shot up over 10 percent during the year, with small-sized apartments enjoying an even bigger boost.

Take City One Shatin residential precinct as an example. A 395-square-feet two-bedroom flat there is now selling for around HK$4.2 million (US$540,000), 20 percent more than a year ago.

The property market has easily outperformed the local stock market. The Hang Seng Index gained a meager 1.3 percent over the year. Everyone is now keen to know how the housing market will fare in 2015.

Shih Wing-ching, the founder of Centaline Property Agency, expects funds from mainland China to keep pushing up property prices in the first six months of this year. But it is hard to predict the trend in the second half, Shih said during a radio interview Friday.

The housing bears, however, say that home prices could tumble as much as 35 percent within the year. Barclays' managing director Paul Louie said the return on property investments is less than 3 percent right now, which is unreasonably low. The unattractive yield would turn investors away.

Meanwhile, Hong Kong government plans to increase land supply in the near future, which could be a factor dragging down property prices.

Other brokerages such as UBS, Credit Suisse and BOCOM International Securities worry that the US Federal Reserve will increase interest rates faster than expected, something that could exert great pressure on Hong Kong's housing market. They believe home prices may drop 10 percent to 20 percent in 2015.

But in Shih's view, even if the Fed is going to hike rates, the People’s Bank of China may ease its monetary policy to boost the country's economy. That could lead to mainland "hot money" driving up home prices in Hong Kong further.

In fact, the relaxation of the Double Stamp Duty (DSD) by the Hong Kong government last May has been indirectly pushing up the price of small flats. Before the change was made, all second-home buyers had pay a double stamp duty if they failed to sell their old units within six months of buying a new one.

The original idea of implementing the DSD was to encourage upgraders to sell their flats rather than holding more than one apartment. It is a way to increase supply in the second-hand housing market.

However, the government has changed the effective time of the six-month waiver period.

The waiver period first began when the buyer signed the provisional agreement for purchase, but it was then extended to a time when the formal agreement was being signed. The change gave the buyer more time (approximately 30 to 45 days) to hold on to more than one property.

The same relaxation also applies to buyers of uncompleted flats. As developers are currently allowed to sell projects up to 30 months before completion, the change has extended the grace period to as long as three years for buyers acquiring flats under construction.

The relaxed rule choked off the supply of small units and led to a sharper surge of their prices in the second half of last year. The tight supply-demand situation will probably continue in 2015.

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EJ Insight writer