Hong Kong Home Prices May Drop by 10% Before Recovering, StanChart Says

Hong Kong home prices, which rose the most globally in the past year, may need to fall as much as 10 percent in 2012 before buyers are lured back, according to Standard Chartered Plc. (STAN)

“Most people are on the sideline,” Benjamin Hung, chief executive officer of the bank’s local unit, said in an interview yesterday. “They are watching. They are waiting. In order for activities to go up, prices may have to come down to drive a little bit more interest.”

Hong Kong home prices slid to a six-month low in early November while the number of housing transactions the previous month fell to nearly a three-year low, after the government increased minimum down-payment requirements and increased land sales to curb a housing bubble. Prices may fall as much as 30 percent by 2013 on rising mortgage rates, according to Andrew Lawrence, head of property sector research at Barclays Capital Asia Ltd.

Standard Chartered, the city’s fourth-biggest mortgage lender, accounted for 7.3 percent of new mortgage deals in Hong Kong from January to November, behind BOC Hong Kong Holdings Ltd., HSBC Holdings Plc (5) and Hang Seng Bank Ltd., (11) according to mReferral Mortgage Brokerage Services.

The government’s property curbs came after prices soared more than 70 percent since early 2009, fueled by record-low mortgage rates, a shortage of new housing supply and an influx of buyers from other parts of China. Hong Kong home prices were the best performer globally over the past 12 months, according to Knight Frank LLP.

‘Good Cushion’

The Hong Kong Monetary Authority, the city’s de-facto central bank, has asked lenders to keep more reserves as part of their counter-cyclical measures, Chief Executive Norman Chan told reporters in Beijing on Nov. 23, adding that loan growth may slow next year on lower mortgage lending.

The loan-to-value ratio in Standard Chartered’s mortgage portfolio in Hong Kong was about 50 percent at the end of November, Hung said.

“We do have a good cushion in terms of the loan-to- value,” he said. “If we combined that with a good culture of meeting debt obligation, I’m less worried about the performance from the credit standpoint.”

Prices have fallen as much as 4 percent from their peak in June, according to an index compiled by Centaline Property Agency Ltd., the city’s biggest privately held realtor. The number of home deals in November fell 64 percent from a year earlier, according to Land Registry figures.

Home prices will probably fall 10 percent next year before transactions return to “a normal level of around 8,000 to 10,000 deals a month,” said Yu Kam-hung, a Hong Kong-based senior managing director at CBRE Group Inc., the world’s biggest commercial property brokerage. The number of home sales has dropped to below 5,500 a month from July to November, according to Land Registry figures.

“Lower transactions combined with a not significant adjustment in the property price suggest that people are watching,” Hung said. “I don’t think there’re a lot of desperate sales.’

To contact the reporter on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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