Structural rebound unlikely

March 6, 2012 / By

Over the last couple of weeks, estate agents and the media have been talking about a rebound in residential sales, with inspection activity and purchases both on the rise. Sentiment from January has no doubt improved, and prices also appear to have stabilised with some rebound evident in a few of the more popular estates.

I believe that one of the valid reasons behind this upturn in market activity is the loosening of bank credit compared with the end of last year. Not only have the banks become more positive towards mortgage lending, but borrowing rates have also been lowered, providing some release for the demand which has built up over the last six months. Of course, the mild decline in residential prices since the middle of last year has also helped to improve buyers’ ability to buy, but only slightly, and to improve end-user demand.

A more lively sales market is certainly good news for the property market, but the question is – is the current situation sustainable?

In an end-user driven market, any sustainable rebound in purchase demand would need to be backed by a solid improvement in economic conditions. To this end, while there are some encouraging signs from the US and Europe, the world is still facing a large number of economic uncertainties and the Hong Kong government is forecasting a significant slowdown in GDP growth this year. While the chances of seeing a significant deterioration in the labour market are low in Hong Kong, not many workers are really expecting any big increase in salary or wealth, this year either. As such, I do not see any strong reason why householders would flock to buy flats before they see a more promising economic and labour market outlook.

Indeed, looking at it from the pricing angle, residential flats are still far from being very affordable, with our Affordability Ratio still standing at 48%, just slightly eased from last October’s 52%. As a further interest rate cut is highly unlikely, any significant and sustainable rise in home prices would therefore need to be complemented with household income growth.

In short, the current pick-up in transaction volume is likely to be sustained in the short term with accumulated purchasing power being released in a more favourable environment. However, with the lingering uncertain outlook and the lack of support from opportunistic investors due largely to the Special Stamp Duty measures, transaction volume is unlikely to climb back to the levels seen in 2010 and 1H11.


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