Hong Kong Home Prices to Fall Up to 25%, Bank of America Says

Hong Kong home prices will fall as much as 25 percent from their peak as housing supply increases and the possibility of rising interest rates grows, according to Bank of America Corp.’s Merrill Lynch unit.

Prices will drop 5 percent this year and another 15 percent in 2014, Raymond Ngai, a property analyst, told reporters at a briefing in the city today. He declined to give forecasts beyond 2014. UBS AG said yesterday that it expects prices to decline 5 percent in 2013 before dropping 15 percent to 20 percent next year.

Hong Kong home prices have fallen about 3 percent since March and transactions are at the lowest in almost two decades, after the government in February imposed its toughest yet measures to curb concerns of a real estate bubble. Prices have more than doubled since early 2009 on record-low mortgage rates, a shortage of new housing supply and an influx of mainland Chinese buyers.

“The housing market has peaked,” Ngai said. “The 20 to 25 percent drop will probably bring prices back to the level around 2011, but even at that, many people would still find it difficult to buy properties.”

Chief Executive Leung Chun-ying, who has pledged to increase land supply since coming to office last July, said in January the private sector may sell 67,000 homes in the next three to four years. Hong Kong developers completed 48,936 homes from 2008 to 2013, the lowest in any five-year period since data became available in 1985.

Price War

Home transactions in the third quarter have fallen to the lowest since the government began making the data available in 1996. Leung doubled the stamp duty on all property transactions above HK$2 million ($257,914) in February. He also has imposed a 15 percent extra tax on non-resident buyers and raised minimum down-payment requirements for some mortgages.

Hong Kong property prices may rebound to levels before the curbs were introduced if the restrictions are removed or partially eased, Leung said yesterday.

As transactions slow, a price war between developers will intensify, said Ngai. Cheung Kong Holdings Ltd., the city’s biggest builder by market value, earlier this year cut prices at a new project in the city to boost sale.

Ngai said he’s still “positive” about Hong Kong developers because of their “attractive valuation.” They are also less dependent on the performance of the home market because of the portfolio of investment properties they have accumulated over the years, he said.

The Hang Seng Property Index, which tracks nine of the biggest Hong Kong-listed developers, has gained 80 percent since the beginning of 2009, while an index compiled by realtor Centaline Property Agency Ltd. shows home prices have jumped 108 percent in the period.

The Hang Seng Property Index is down 3 percent this year.

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