Hong Kong Homes Set for a ‘Good Year,’ Builder Says (Update2)

March 12 (Bloomberg) -- Hong Kong’s home market may see “another good year” in 2010 as buyers remain financially sound, according to Sun Hung Kai Properties Ltd., the world’s biggest developer by market value.

“We don’t see any bubbles in the market,” Victor Lui, executive director of Sun Hung Kai’s real estate arm, said at a briefing yesterday.

An economic recovery in Hong Kong, near-zero interest rates on savings, 20-year low mortgage rates and record low supply spurred a 29 percent gain in overall existing home prices last year, leading the government to raise property taxes and down- payments to cool the market.

“The residential market in Hong Kong is likely to see another good year both in terms of prices and volume,” Chairwoman Kwong Siu Hing said in a stock exchange statement as the developer announced underlying first-half profit that beat estimates. “Affordability, mortgage interest rates, liquidity and homebuyer confidence remain favorable,” she said.

Sun Hung Kai shares rose 1.4 percent to HK$116.10 in Hong Kong, the highest in two months. The gain narrowed the Hong Kong-based developer’s decline to 0.2 percent this year, compared with a 3 percent drop in the Hang Seng Index.

Last year’s increase in home prices led the Hong Kong Monetary Authority to tell banks to price new mortgage loans above its “reference rate” amid concerns a price war may further erode their profit margins, Stanley Wong, deputy general manager at ICBC Asia Ltd., said earlier this month.

No Real Intervention

The HKMA, the city’s de facto central bank, set the reference levels at 0.7 of a percentage point above the one- month Hong Kong interbank offered rate and 3.1 percentage points below the prime mortgage rate when it met lenders, Wong said.

So far, Hong Kong’s measures don’t represent active intervention in the market, Credit Suisse analysts led by Hong Kong-based Cusson Leung said in a March 8 report. “We believe the government will observe the market for another two to three months to gather any hard evidence before it really intervenes,” the report said.

A price index of existing Hong Kong homes fell 1.2 percent in the seven days ended March 7 from the preceding week as developers started selling new projects, Centaline Property Agency Ltd. said in a report e-mailed today. That is the first decline in four weeks, the report said.

Active Transactions

Still, prices continue to be on an uptrend as transactions are active, Wong Leung-sing, an associate director of research at Centaline, said in the report. The weekly index, developed by Centaline and the City University of Hong Kong, has gained 5.2 percent this year, according to the data.

The city’s government shouldn’t enter the property market, as its last intervention led to the 1998 crash, Thomas Kwok, vice-chairman of Hong Kong-based Sun Hung Kai and Kwong’s son, told reporters at a briefing yesterday.

Prices of some luxury apartments, typically defined as those bigger than 1,000 square feet (92.9 square meters) or costing more than HK$10 million ($1.29 million) each, have returned to record levels posted in 1997, John Tsang, Hong Kong’s finance secretary, said in his Feb. 24 budget speech.

Henderson Land Development Co., a Hong Kong developer controlled by billionaire Lee Shau-kee, said in October it sold a luxury apartment at a world record price of HK$88,000 on a per square foot basis.

Overheating?

History may make Hong Kong’s leaders cautious. At the height of a bubble in 1997, the year Britain returned Hong Kong to China, the government pledged to supply 85,000 homes a year. In 1998, prices tumbled in the Asian financial crisis.

Kwok’s comments pit him against rival developers such as New World Development Co., whose managing director Henry Cheng said parts of Hong Kong’s property market show signs of “overheating.” Cheng, son of billionaire Cheng Yu-tung, supports proposals to resume construction of government- subsidized housing provided not “too many” units are built, Radio Television Hong Kong reported March 8.

Billionaire Vincent Lo, chairman of developer Shui On Land Ltd., also backs the proposal, the government broadcaster said.

Measures by the Chinese and Hong Kong governments to cool the property market “are sensible” as steps include an increase in supply, Martin Cubbon, chief executive of Swire Properties Ltd., the real estate arm of Swire Pacific Ltd., said yesterday.

Improve Transparency

“We will support any moves that seek to improve transparency in prices,” Cubbon said, declining to comment further as Swire Pacific seeks to spin-off the properties unit through a share sale in Hong Kong.

Completions of Hong Kong apartments fell to a record low of 7,160 last year and may double this year, the government said on March 4. For homes bigger than 100 square meters each, completions, which more than doubled in 2009 to 2,420, may fall to 1,430 this year, it said.

Sun Hung Kai and Swire Pacific yesterday reported profit that beat analysts’ estimates.

Sun Hung Kai said fiscal first-half underlying profit rose 44 percent to HK$6.51 billion on wider margins from real estate sales and higher rental income. The median estimate of five analysts surveyed by Bloomberg News was HK$5.55 billion.

Swire Pacific, the Hong Kong office landlord and owner of 42 percent of Cathay Pacific Airways Ltd., said 2009 underlying profit jumped 62 percent to HK$8.48 billion, as the airline returned to profit and rental income rose. That compares with the HK$7.5 billion median estimate of five analysts surveyed by Bloomberg.

To contact the reporter on this story: Chia-Peck Wong in Hong Kong at cpwong@bloomberg.net.