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Hong Kong Home Prices to Fall Up to 20%, Deutsche Bank Says

Hong Kong Home Prices to Fall Up to 20%, Deutsche Bank Says
Swire Properties Ltd.'s Opus Hong Kong, designed by architect Frank Gehry, stands on Stubbs Road in Hong Kong, China. Photographer: Jerome Favre/Bloomberg

Property prices in Hong Kong may fall as much as 20 percent in the next 12 months as the city’s new leader sets out to increase housing supply after taking over in July, according to Deutsche Bank AG.

“The supporting pillars for the residential market over the past two years are weakening,” Deutsche Bank analysts Tony Tsang and Jason Ching wrote in a report yesterday. On July 1, “we expect the Hong Kong property market to enter a new age, characterized by normalized supply dynamics.”

Hong Kong home prices have risen about 8 percent this year, extending gains since early 2009 to more than 80 percent after a slowdown in the second half last year. Leung Chun-ying, who takes over as chief executive in July, has pledged to bridge a widening wealth gap and rein in home prices that have become increasingly unaffordable for the general public.

The surge in real estate prices over the past three years has been fuelled by record-low mortgage rates, a lack of new supply and an influx of buyers from other parts of China. Hong Kong halted regular land sale in 2004 to support falling home prices, before resuming the mechanism in 2010. The city is now the world’s most expensive place to buy a home and to rent office space.

Financial Secretary John Tsang and Norman Chan, head of the Hong Kong Monetary Authority, have both warned the public about potential risks when buying property. The government may take further action including accelerating new land supply and tightening mortgage lending if home prices continue surging, the officials have said.

Home prices may fall as much as 40 percent if the city’s economy contracts as a result of the European debt crisis in “the worst case scenario,” Raymond Ngai, an analyst at Bank of America Corp.’s Merrill Lynch & Co. unit, said last week.

The Hong Kong government may reduce its 1 percent to 3 percent growth forecast for this year because of concerns that the European debt crisis would worsen, Financial Secretary Tsang said last week.

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