Hong Kong is lagging behind the rest of Asia as a competitor in the real estate market, ranking 21st among 22 surveyed destinations across Asia-Pacific region in both investment and development prospects, PwC in its latest 2015 property market forecast on Monday.

The report, jointly published by PwC and the Urban Land Institute, indicated that while an imminent interest-rate hike and the mainland's slowing economy is likely to pull back investors, the Hong Kong government's cooling measures introduced last year, lower loan-to-value mortgage lending and lower retail spending by mainland tourists have already contributed to the city's declining attraction for property investors.

"Notwithstanding their lower ranking, Hong Kong's market has enjoyed a remarkable resurgence in the second half of 2014. Although the government's measures initially had an impact on transaction volumes, pricing in both the residential and commercial sectors proved largely immune to the downdraft," said K.K. So, Asia Pacific real estate tax leader of PwC.

"However, some investors are cautious about the outlook of the markets, as they see prices softening, driven largely by the impending rises in interest rates, and there is always the concern that the government will intervene further," he said.

According to the report, Hong Kong's ranking as a real estate market plunged from second in 2010 to next-to-bottom this year. However, despite the government's cooling measures, sustained price hikes in both the residential and commercial sectors, as well as the city's attraction as a proxy for buying on the mainland, have supported a brisk property market since the second half of this year.

But, it pointed out that the continuing housing supply from local developers this year and the coming three years can be viewed as a strategy to diminish debt levels in preparation for renewed land purchases in the expectation of falling land prices in the future.

It indicated that impending interest-rate rises and the long-standing concern that the government will further intervene to make it more difficult for people to borrow will eventually drive home prices down.

Meanwhile, Barclays' latest report on Hong Kong's property market found that increased land supply has suppressed land prices this year. For instance, in the two Lohas Park tenders this year, land prices appeared to have fallen by 15 to 22 percent compared to tenders in 2007.

But home prices have yet to react towards the trend of falling land prices. Barclays' research found that the city's real estate prices have risen by 9.3 percent year-to-date, and the tension between strong demand and weaker supply have already been softened and will disappear in future, resulting in a potential over-supply situation in the market.

agnes@chinadailyhk.com

(HK Edition 12/09/2014 page8)