Hong Kong's pent-up housing demand could herald price rebound

HONG KONG (Reuters) – The outlook for the world's least-affordable Hong Kong property market has begun, with some badysts predicting that prices could rise 10 percent this year after only a short-lived correction.

Repressed demand, expectations of a slowdown in rising interest rates and optimism Beijing and Washington will soon conclude a trade agreement, have helped boost sales after falling prices since mid-2018. The total volume of transactions jumped 120% in January to 4,355 sales against 1,963 in December, according to data from real estate agent Centaline.

The cooldown, which slowed the ten-year uptrend and prices rose more than 200 percent, raised fears that a long-lasting downturn will hurt homeowners struggling with a financial crisis. Interest rates are rising and economic uncertainties are increasing.

However, a rebound in prices means that potential buyers will only have a narrow margin of maneuver to acquire some of the city's exorbitant real estate, re-launching the challenges policymakers face in easing public discontent with rising costs and badet bubble risks.

Citi, among the most optimistic, sees prices rebound from March. According to brokerage forecasts, prices could increase by 30% in the next two years, with 2019 alone recording a 5% increase.

"There may be black swans, but that should not change the long-term upside cycle (…) our market is in serious short supply," said Ken Yeung, head of real estate research in Hong Kong at Citi.

Yeung estimated the total housing supply at an average of 38,000 units per year until the end of 2021, a demand of less than 53,000 units per year.

"The real estate rebounds have been strong every time in the past because the corrections go against fundamentals," he added. "When a series of negative news occurs, many people with real demand, such as newlyweds, postpone their purchases, creating pent-up demand. These requests do not disappear, they accumulate. "

Official prices for private housing in Hong Kong declined for the fifth consecutive month in December, down 2.4% from November, according to official data. But prices have risen another 1.6% for the whole of 2018.

CLOSE TO THE BACKGROUND?

While the actions of local real estate developers are a precursor to real estate trends, the Hang Seng property sub-index has jumped about 28% since October, returning to levels reached in June before trade tensions intensified between Canada and the United States and the defeat of the market.

CLSA also expects the real estate market to rebound to 15% from April to the end of the year, while capital seeks investment opportunities and that the pent-up demand of the mainland Chinese who get their residence in Hong Kong is unleashed this year.

Developers who have launched new units at attractive prices, some with a discount of 20% in the secondary market, over the last two months have also been a catalyst for the resumption of transactions.

Geoffrey Lo, general manager of developer Nan Fung Development, said January sales were better than expected, with activity generally low before Lunar New Year. He added that the company could launch more sales this year, depending on market conditions.

But not everyone is as optimistic as prices are falling.

Justin Chiu, executive director of CK Asset Holdings, a leading developer, said he was still expecting a plunge in real estate prices of 10% this year because of uncertainties related to the tensions and increasing the number of homeowners facing negative equity – when a home loan exceeds the market value of the property.

Hong Kong has seen its first negative equity cases in two years in the last quarter of 2018, said a manager last month.

Yeung, of Citi, however, mitigated the impact of negative equity on the real estate market. The number of cases was still very low and the average loan-to-value ratio, the loan-to-badet ratio, was 46% in the last two years, indicating that most buyers were powerful enough to withstand a correction. of price.