Hong Kong Home Prices to Drop as Much as 25%, Bernstein Says

Hong Kong home prices will fall as much as 25 percent after the government stepped up measures to curb an asset bubble and as banks raised mortgage rates, according to Sanford C. Bernstein H.K. Ltd.

The number of new apartment sales will “remain largely subdued” with developers shifting their focus to cheaper and smaller units to boost sales, analysts led by Kenneth Tsang wrote in a report today.

An index tracking home prices dropped the most in almost three years in the week ended April 14 after the government introduced its toughest yet measures to cool prices on Feb. 22. Prices could fall as much as 20 percent over the next two years, Deutsche Bank AG said in a report last month.

Cheung Kong Holdings Ltd., which last month lowered prices by almost 10 percent at a project in response to the government curbs, may introduce more price cuts to boost sales, said the Bernstein analysts. The builder is controlled by Li Ka-shing, the city’s richest man.

The analysts assigned an underweight rating to Hong Kong developers and are advising investors to sell Henderson Land Development Co. because of its “strong competition with Cheung Kong,” and Sino Land Co., which has “large exposure in larger units within its own portfolio.”

Stamp Duty

Shares of Cheung Kong rose 0.3 percent to HK$116.80 at the close of trading in Hong Kong, trimming their loss this year to 1.9 percent. Henderson Land rose 1.3 percent to HK$56.80, taking this year’s gain to 3.8 percent, while Sino Land added 0.9 percent to HK$12.88, reducing the 2013 drop to 7.6 percent.

The Hang Seng Property Index, which tracks the shares of nine of the city’s biggest developers, rose 0.4 percent and is up 1.5 percent this year, compared with a 2.7 percent drop in the benchmark Hang Seng Index in 2013.

Home prices fell 1.41 percent in the week ended April 14, the fourth-straight weekly decline, according to an index compiled by Centaline Property Agency Ltd., Hong Kong’s biggest closely held realtor. It was the biggest drop since May 2010.

Before February’s measures, a housing shortage, low mortgage costs and buying by mainland Chinese helped prices more than double since the start of 2009 even as policy makers attempted to rein in gains amid an outcry over affordability.

The government on Feb. 22 doubled the stamp duty on all property transactions higher than HK$2 million ($257,612), while the Hong Kong Monetary Authority told banks to maintain the risk weighting for new home loans at a minimum of 15 percent to help protect them against a drop in home values.

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