Property analysts cautioned that the Hong Kong home market will experience a downward price correction of 10 to 15 percent in 2012 as an uncertain external economic environment, the city's soaring mortgage rates and higher minimum down-payment take their toll.

Meanwhile, prices in the luxury property sector will fall 5 to 10 percent, property consultancy firm Jones Lang LaSalle (JLL) said on Tuesday.

Over the past year the Hong Kong government has introduced a special stamp duty (SSD), boosted land sales and curbed mortgage lending by raising minimum down-payments to curb local home prices which have soared 70 percent since 2009.

Now, after all these measures, the local home market has seemingly cooled down. Home transactions by volume and value have slumped nearly 64 percent and 40 percent on a yearly basis in November, according to the Land Registry data released Dec 2.

According to JLL data on Tuesday, home sales declined 37 percent to 80,161 in the first eleven months compared with the same period last year.

"Global macroeconomic uncertainty will propel a wait-and-see attitude among home sellers and buyers. Besides, the levy of the special stamp duty, rising mortgage rates and raising the minimum down-payment all exerted negative sentiment in the local home market," said Joseph Tsang, JLL managing director.

"With particular reference to rising mortgage rates, JLL predicts that the local mortgage rate can still rise by as much as 1 percent given that local banks are rather stretched in their loan-to-deposits ratios that has sent local banks' funding costs spiraling up," Tsang added.

Ricacorp Properties Head of Research Patrick Chow said that the rising trend of mortgage loan rates in the city will curb the demand to trade a smaller flat for a larger one since this will raise the financing cost for the mortgage loan borrowers. Chow reckoned that local home prices will be 10 percent lower in 2012.

Nicholas Brooke, chairman of the local-based Professional Property Service, said that the downward price correction of the local home market is inevitable in 2012.

"Given the external macroeconomic factors that are impacting on the local economy, and the government measures at enhancing land supply, it is just a question of how deep the price correction will be and when the price correction will start," Brooke said in a Bloomberg television interview on Tuesday.

However, a property analyst at Samsung Securities argued that there are other inherent buffer factors that can stabilize local home price fall to around 10 to 15 percent in 2012.

"Hong Kong is unlikely to see a sharp correction in home prices as real mortgage rates remain far below the average rental yields, different from the situation in late 1990s. Moreover, the lower loan-to-value ratio for new residential mortgage loans helps maintain a positive monthly cash flow for the mortgage loan borrowers, which can enhance the holding power for homeowners that avoid sharp price corrections," Samsung Securities analyst Rosanna Tang wrote in an investment note on Tuesday.

oswald@chinadailyhk.com

China Daily

(HK Edition 12/07/2011 page2)