A view of Kowloon residential buildings. Prices of the city's luxury homes have almost reached the ceiling, a report said. Daniel J. Groshong / Bloomberg

Luxury home market has almost reached the summit: Colliers

Global real estate consultancy Colliers International sees limited upside for Hong Kong's luxury home prices in the next 12 months. The company has forecast just a 6 percent gain in the average price of luxury homes over the coming year.

"The price of Hong Kong's luxury residential market has almost reached the ceiling," Ricky Poon, executive director of residential sales at Colliers International Hong Kong, said at a media briefing on Thursday.

The four months to end-April saw the average luxury home price in Hong Kong grow 5.4 percent, while the average rent for luxury residential properties rose 5.2 percent over the same period.

In 2010, luxury homes rose 16.3 percent and rents gained 15.4 percent.

The buoyant sentiment has been reflected in the high prices housing sites were able to fetch at recent land auctions, where vendors were at times seen raising their asking prices by 3-5 percent.

This has occurred despite the significant slowdown in the sales transactions of luxury homes. The sales volume of homes sold for more than HK$10 million dropped 11.5 percent in the first quarter of this year compared with the fourth quarter of 2010.

For the city's residential property market as a whole, the number of transactions plummeted 42 percent from November 2010 to April 2011 as the government further tightened the market with the introduction of a special stamp duty and a boost to land supply.

And the marked decline in sales transactions, said Poon, is probably one way of assessing how much further the price of luxury homes can still rise.

"The average luxury residential price has already exceeded the peak in 1997 by around 40 percent", said Poon, voicing his doubts.

Adding to this are the gradual uptick in home mortgage rate and the increasingly conservative valuations of residential properties in the city by banks.

"The margins of Hibor-based (Hong Kong interbank overnight borrowing rate) mortgages have seen an increase of about 50 to 100 basis points," Simon Lo, director of research and advisory at Colliers International Hong Kong said.

"Some banks are also anticipating higher price volatility in 2011," he added. That has resulted in conservative valuations in some cases where valuations were 10-15 percent below their asking prices.

And the banks' tightening may provide one more reason as to why prices may not climb much further, Poon said.

In a report released on Thursday, Barclays Bank Plc cautioned that the costs of borrowing in the city may continue to rise as liquidity tightens further after saying that the mortgage rate in Hong Kong has already reached a level that the bank had earlier predicted would not occur until the end of the year.

However, Wong Leung-sing, associate director of research at Centaline Property Agency Limited, does not agree with the Colliers report.

"Of course the home price hasn't yet reached the ceiling," Wong told China Daily. A good economy that is growing at a rate of 7 percent and strong demand - particularly from wealthy mainland buyers - for luxury homes in the city bodes well for the luxury residential market, according to Wong, who predicted a "staggering" gain in Hong Kong's luxury home prices throughout the remainder of the year.

China Daily

(HK Edition 05/27/2011 page3)