Hong Kong Home Prices Seen Firm as Volume Drops Amid Protests

http://www.bloomberg.com/news/2014-10-16/hong-kong-home-prices-seen-firm-as-volume-drops-amid-protests.html

Hong Kong’s existing home transactions dropped amid pro-democracy protests now in the third week. Prices are holding firm.

The number of homes changing hands fell about 20 percent so far this month, compared with the same period in September, as buyers and sellers become more cautious, according to Sammy Po, residential chief executive at realtor Midland Holdings Ltd. While some homeowners have been more willing to accept prices cuts of as much as 3 percent since the protests began, most haven’t budged, Po said.

Home prices, which hit new highs last month, won’t be significantly affected by the political standoff that saw as many as 200,000 protesters occupy Hong Kong’s key roadways, said property broker Savills Plc. Homeowners aren’t in a hurry to offload their properties, even as some potential buyers are deterred by the city’s political uncertainties, according to Citigroup Inc.

“It’s a normal reaction for people to take a wait-and-see approach,” said Wong Leung-sing, an associate research director at Centaline Property Agency Ltd., Hong Kong’s largest privately held realtor.

Existing home prices, tracked by Centaline, dropped 0.4 percent in the week ended Oct. 5 after the protests started on Sept. 26. Prices, which declined as much as 5.2 percent since the government doubled a property tax in February last year, have rebounded 7.3 percent this year.

Forecast Cut

Protesters are demanding elections of Hong Kong’s chief executive free from the influence of China in 2017. The rally that started outside the government headquarters has spread to main arteries in the city’s main business district and prime shopping areas, and has prompted Bank of America Corp. to cut its economic growth forecast for Hong Kong this year.

“If it persists and worsens, it will affect people’s livelihood and the economy,” said Midland’s Po. “Then the weakened purchasing power will affect the property market.”

The chance of the movement seriously disrupting Hong Kong’s economy is slim whereas the probability of rising interest rates is much higher and likely to have a greater impact on housing demand, said Nicole Wong, regional property research head at CLSA Ltd.

Hong Kong rates track those in the U.S. because the local currency is pegged to the U.S. dollar.

“The market will likely remain in its current state -- rising prices amid low volume -- until rates increase,” said Wong, who called for home prices to drop 10 percent next year and a further 5 percent in 2016.

Political Outlook

Three projects have been offered by developers since the start of the protests, including a 1,092-unit project by New World Development Co. (17) and Henderson Land Development Co. (12) All three have had “decent sell-through rates,” Ken Yeung and Oscar Choi, Citigroup analysts, wrote in an Oct. 14 note.

The Hang Seng Property Index tracking returns of nine developer stocks, declined 1.9 percent since Sept. 26, compared with the 2.8 percent drop in the benchmark index.

Developers have lured buyers from the existing home market with discounts and subsidies, narrowing the premium that usually is paid for new flats, since the government slapped on three rounds of taxes aimed to control surging prices. New World, for example, offers as much as a 6 percent cash discount as well as rebates on property taxes at its Pavilia Hill residential development, one subway stop from the prime shopping district of Causeway Bay.

The protest movement “isn’t particularly germane to prices or volume,” said Simon Smith, senior director of research and consultancy at Savills, citing government measures as the main damper on transactions. “We’ll have to reconsider if the disruptions last considerably longer. As yet, it’s far too early to say.”

To contact the reporter on this story: Michelle Yun in Hong Kong at myun11@bloomberg.net

To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net Tomoko Yamazaki