Hong Kong home prices could tumble 30% through 2017 on deteriorating economy: UBS
The iconic skyline of Hong Kong where Swiss bank said home prices could stumble through 2017 due to a deteriorating economy. Photo: AFP
Hong Kong home prices could tumble by as much as 30 per cent from now to the end of 2017 as buying demand is hurt by a deteriorating economy, rising unemployment rates and lower inflation, global lender UBS said in a briefing.
“Unlike past down cycles that were triggered by global economic shocks, we believe this round of price reversals will be triggered by a deteriorating local economy. Thus, we think price drops may come more gradually and over multiple years,” Eva Lee, executive director and Head of Hong Kong/China Property Research at UBS, said.
Hong Kong home prices have jumped 340 per cent since 2003 when the city was in the grip of the Sars outbreak.
Alfred Lau, a property analyst at Bocom International, said Hong Kong home prices are the highest relative to property developer stocks in almost two decades.
“It is a sign that the property market will drop as much as 20 per cent in the last quarter this year,” he said.
The logo of Swiss bank UBS at the company’s headquarters in Zurich, Switzerland. Photo: Reuters
The Hang Seng Properties Index slumped 15 per cent this quarter through last week.
Lau believes stock prices have built in a cautious expectation on property prices, with Hong Kong property stocks having declined 20 per cent on average in the past 4 months. The current net asset value discount is 44.5 per cent, versus its 7-year average of 35.4 per cent.
“Therefore, we estimate the market has already priced in a 10 to 15 per cent correction in property prices and share prices may consolidate at current levels,” he said.
Lee of UBS forecast home rents could fall 10 per cent during the same period.
Despite the market’s focus on mortgage rate hikes, Lee sees other economic factors as more important drivers of Hong Kong’s home prices.
Prime retail rents for luxury shopping malls in Hong Kong could fall by as much as 25 per cent while a 10 per cent fall is seen for the mass market, she said.
“We expect rapid growth in mainland visitor spending in Hong Kong—which recorded a 19 per cent growth over 2007-2014—to reverse given a few macro headwinds,” she said.
The contribution of tourist spending to Hong Kong retail sales was 42 per cent last year.
“It is the highest level we have ever seen in the world and it is an unhealthy market. Hong Kong will get hit immediately once the number of tourist arrivals falls,” she said.
PUBLISHED : Tuesday, 29 September, 2015, 12:27pm
UPDATED : Tuesday, 29 September, 2015, 1:25pm