Kelvin Wong, Bloomberg
Hong Kong: Li Ka-shing and Lee Shau-kee, Hong Kong’s two richest men, say Hong Kong home prices will rise this year as lending rates stabilize and wages increase.
There is “moderate upward pressure on property prices,” Li, the 78-year-old chairman of Cheung Kong Holdings Ltd, said 22 March. Lee, chairman of Henderson Land Development Co., forecast a 10% rise.
Hong Kong home prices, the worst-performing in Asia last year according to the Global Property Guide, may rebound as the economy extends the longest period of growth since British rule ended in 1997. The US Federal Reserve’s decision last week to abandon its bias in favor of raising interest rates will also help the city, where borrowing costs typically track those in the US because of the Hong Kong-US dollar peg.
“Even during two years of rate increases property prices remained solid, proving the strength of the market,” said Buggle Lau, chief analyst at Midland Holdings Ltd, Hong Kong’s largest publicly traded real estate agent. “Now the Fed’s signals are clearer, we may start seeing some real pick-up.”
Luxury residential prices rose about 8% last year while those for mass-market apartments were largely unchanged, according to Simon Wong, head of research at property consultant CB Richard Ellis Inc. The company predicts luxury unit prices will increase as much as 12% this year, with mass-market properties gaining 10%.
Singapore and South Korea had the best-performing property markets, according to the Global Property Guide, a Manila-based real-estate consultant.
The gain in luxury home prices last year helped Li’s Cheung Kong, Hong Kong’s biggest developer, post a 29% increase in operating profit to $1.89 billion (Rs8,218 crore). Henderson Land reported six-month real estate earnings from apartment sales rose 10-fold to $153 million. Overall profit rose 3 percent.
“We’re optimistic,” Li, worth $23 billion according to Forbes magazine, said. Homebuyers are growing more confident because of “stable lending rates and an optimistic outlook for Hong Kong’s economy.”
The jobless rate has fallen to an eight-year low of 4.3% and Financial Secretary Henry Tang this month cut stamp duty on property transactions for homes costing less than HK$2 million ($256,000) and waived real-estate taxes for six months. The government also handed salary tax cuts and announced one-time rebates of as much as HK$15,000 per person.
Companies gave workers an average pay rise of 3.14% in the first two months of 2007, according to the Employers’ Federation of Hong Kong, which forecast an average increase of 2.9% for the rest of this year.
Hong Kong’s homeowners pay about a third of their income in mortgage payments, according to Midland’s Lau, less than the 50% of household income that banks consider a maximum when offering mortgages. “These are very healthy numbers,” he said.
After soaring in the early 1990s, prices plunged two-thirds between 1997 and 2003, leaving thousands of households with home loans that were more than the value of their homes. The market has recovered many of those losses, though prices have gained more slowly than in the past.
“I don’t think the market is strong right now,” Hang Lung Properties Chairman Ronnie Chan said in a February interview. “It’s just chugging along.”
Hang Lung, the city’s third-largest builder by market value, will “wait for a better time” before resuming the sale of apartments in three projects, he said.
“Property prices are unlikely to rise substantially unless the Fed starts cutting rates,” Ken Yeung, a Hong Kong-based analyst at BOCI Securities Ltd, said in a phone interview. That probably won’t happen until the second half, he said.
Still, apartment completions may decline to a 30-year-low this year, leaving a shortage of new homes in the market, Yeung said. If interest rates also fall, prices may rise 10 percent by the end of 2007, he said.
Hong Kong builders will probably complete 12,740 residential units this year, down 23% from 2006, according to the city government’s Rating and Valuation Department.
Banks are also flush with cash. Total Hong Kong dollar deposits rose 20% in the year through January, while local currency loans expanded 11%. HSBC Holdings Plc on 22 February trimmed its mortgage rate to 4.87% from 5% for borrowers seeking at least HK$500,000. Bank of China (Hong Kong) Ltd, the No. 1 home lender, and Bank of East Asia Ltd. cut their home loan rates the following day.
“Low mortgage interest rates, high affordability for buyers and renewed confidence will support the demand for housing,” Sun Hung Kai Properties Ltd Chairman Walter Kwok told reporters on 7 March.
Kwok, who is ranked third on the Forbes list of Hong Kong’s wealthiest people, alongside brothers Thomas and Raymond, predicted a 10% increase in prices this year.
Sun Hung Kai and Cheung Kong accounted for 46% of new home sales in Hong Kong last year.
“There is strong purchasing power from the end user,” Cheung Kong Deputy Chairman Victor Li, who is also the son of Li Ka-shing, told reporters last week. “Both the primary and secondary market have been very strong.”