Avoid Hong Kong Builders as Home Prices Set to Stall, CLSA Says

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Home prices may rise 8 percent in the next 12 months, while office rent may drop 15 percent and retail rent may gain 10 percent. Close

Home prices may rise 8 percent in the next 12 months, while office rent may drop 15... Read More

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Photographer: Jerome Favre/Bloomberg

Home prices may rise 8 percent in the next 12 months, while office rent may drop 15 percent and retail rent may gain 10 percent.

Hong Kong property stocks should be avoided as growth in the city’s home prices may slow after its new leader vowed to increase housing supply upon taking over in July, according to CLSA Asia-Pacific Markets.

“We see little reason to own the stocks in the next five years,” CLSA’s Hong Kong-based analysts led by Nicole Wong wrote in a report yesterday. The election of the city’s new leader “should mark the end of an unusual period for the Hong Kong property market.”

Leung Chun-ying, a former property surveyor, last month won the election to be Hong Kong’s next chief executive, having pledged to bridge the income gap and bring down property prices by accelerating housing supply. Hong Kong’s home prices have gained more than 70 percent since early 2009 on record low market rates and an under-supply of new units.

Home prices may rise 8 percent in the next 12 months, while office rent may drop 15 percent and retail rent may gain 10 percent, according to CLSA.

The analysts predict property stocks such as Sun Hung Kai Properties Ltd. (16), the city’s biggest builder, Henderson Land Development Co., and Sino Land Co. to perform worse than the market. They also advised investors to sell Midland Holdings Ltd. (1200), the city’s biggest publicly-traded realtor, and New World Development Co.

Hang Seng Property Index (HSP), which tracks the city’s seven biggest builders, has tripled in the past 10 years. It was little-changed at 10:16 a.m. in Hong Kong today.

The analysts have singled out Hang Lung Properties Ltd. (101), Wharf Holdings Ltd. (4) and Singapore-listed Hongkong Land Holdings Ltd. (HKL) as developers which may outperform the market.

Chief executive-elect Leung said last month he doesn’t see signs of overheating in the property market, reassuring investors concerned that he would introduce polices hurting developers.

“I’m not going to bring down prices, rents artificially through government actions,” Leung told reporters at a briefing in the city on March 28. “Affordability will not catch up with prices quickly.”

To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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