Goldman Cuts Hong Kong Property Seeing 20% Drop in Home Pricesby and
Rising interest rates, cooling measures to drive declines
Real estate stocks lowered to neutral from attractive
Hong Kong property stocks were downgraded by Goldman Sachs Group Inc., which predicts a 20 percent decline in home prices as borrowing costs rise.
The drop will be “driven chiefly” by a potential 150 basis points to 200 basis points increase in interest rates and the “limited prospect of any loosening of government cooling measures in the near term,” Goldman Sachs property analyst Justin Kwok said in a research note Thursday. The Wall Street bank cut the Hong Kong property sector view from attractive to neutral, saying that “tough conditions of high prices and low volumes” will persist.
Hong Kong property prices have declined and sales tumbled to a 25-year low in February amid economic uncertainty. The number of the city’s homeowners with apartments worth less than their mortgages soared 15 times in the first quarter, according to the Hong Kong Monetary Authority. Home prices in the city dropped about 12 percent from a peak in September through April, according to data compiled by Centaline Property Agency Ltd.
Kwok predicted that developers will shift their focus from developing units for sale to building investment properties for rent. This structural shift is likely to benefit Cheung Kong Property Holdings Ltd., which Goldman Sachs added as a buy to its conviction list, considered to have a stronger recommendation than regular ratings.
Goldman Sachs cut its rating on Hysan Development Co. Ltd. to sell, citing its heavy exposure to the retail-sales market, while downgrading New World Development Co. Ltd., Kerry Properties Ltd. and China Lodging Group Ltd. to neutral.
The Hang Seng Properties Index fell 0.8 percent to a one-month low at the close in Hong Kong. New World Development slid 1.6 percent, while Hysan Development dropped for a fifth day in its longest losing streak since August.
Goldman Sachs said the office segment was “the most defensive” as it was the only one with any growth, while retail will remain weak given softening sales.