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24/06/2011

 HONG KONG — Chris and Karen Lane are in the market for a property in Hong Kong. They added a daughter, Bailyanna, to the family in October and are moving back to the city of Ms. Lane’s birth after nine years in Japan.

 

Several analysts are suggesting the housing market in Hong Kong is headed for a downturn of as much as 30 percent.
 
But like many potential buyers here, they are hesitant. They fear that prices are about to decline, which means they could be caught buying at a peak of the market.
 
“I want to buy a place to live, and I don’t want to pay someone else’s mortgage” as a renter, said Mr. Lane, who has been working as a property broker in the ski-resort town of Niseko, Japan. “But I’m worried that prices will drop within a year. Would it be better to rent for a year and buy at a 30 percent discount?”
 
They are not alone. The pitch of anxious voices has been rising in this property-obsessed city. Prices have zoomed up close to 70 percent since the start of 2009 — the 24.2 percent rise for the 12 months through the end of March alone put Hong Kong at the top of a comparison of 50 countries, according to a report released this week by the Knight Frank agency. The activity has left many owners and investors wondering if the notoriously volatile Hong Kong market is about to shift again.
 
Several analysts are suggesting the market is headed for a downturn of as much as 30 percent. “We believe the Hong Kong property market is overheating, raising the possibility of a sharp correction in prices,” Bei Fu, a credit analyst at Standard & Poor’s, wrote in a report released this month.
 
Andrew Lawrence, head of Asian real estate research for Barclays Capital, is even more precise. “We are reaching, over the next course of the next couple of months, a top in the market,” Mr. Lawrence said. “Affordability is going to decline as mortgage rates go up, and people’s purchasing power will fall.”
He is predicting a 25 percent to 30 percent fall in property prices going into 2012.
 
Walter Kwok, the former chairman of Sun Hung Kai Properties, the biggest developer in the world by market capitalization, recently offered a similar opinion, although his prediction was less steep. “I wouldn't be surprised if they will fall 10 to 15 percent,” Mr. Kwok said in an interview in Chongqing. “We have already seen the peak”
Hong Kong’s boom has been fueled by record-low mortgage rates, ready credit and tight supply. Advocates stress that the number of new properties remains very small, wage growth is good and there are few forced sellers. But transactions have slowed dramatically, down 40 percent from the start of the year.
 
That decline is partly the result of a special stamp duty imposed in November — of as much as 15 percent on quick resales. Brokers say the levy has removed speculators from the market.
 
According to Mr. Lawrence, tighter credit is what will make today’s bull market unsupportable. Private borrowers are more highly leveraged than ever before, and purchasing power is dwindling.
 
“The key thing is that property prices are at 11 times household income,” Mr. Lawrence said. “If you can’t borrow any more, then you simply can’t pay those prices.”
 
Hong Kong’s “affordability ratio” — the amount of household income spent on servicing a mortgage — has risen to 48 percent this year, up from 36 percent last year. When local banks evaluate how much a client can afford to borrow, most use 50 percent as their cutoff point.
 
Banks also have started to raise mortgage rates on new loans. Mortgages based on the Hong Kong Interbank Offer Rate (HIBOR), which account for more than 90 percent of all new home loans, were being made at effective rates of less than one percent last year. But the rate has more than doubled this year, even as Hong Kong’s interest rates — tied to U.S. rates, thanks to the territory’s pegged currency — remain very low.

SOURCE: THE NEW YORK TIMES


 



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