Another uncertain year ahead on homes

Editorial | Mary Ma 2 Jan 2018

Despite all the dire warnings heard over the months, housing prices kept surging nonstop in 2017 - so much so that even studio units are surreally priced above the mark of HK$10 million.

The terrifying trend was spurred by new projects, with developers offering dangerously high-ratio mortgages and special rebates.

It's been a boom time for them. Land Registry figures show more than 18,500 new units were sold in 2017, marking a 13-year high. The secondary market was more active than the year before too, with nearly 45,000 units changing hands - although this was still an extremely low historical level.

Few are brave enough nowadays to predict a correction. That there will be one is the kind of dissent that belongs to the absolute minority.

Policy-wise, 2017 could be divided into two halves, in line with the local leadership change. While it's the policy of both Chief Executive Carrie Lam Cheng Yuet-ngor and her predecessor, Leung Chun-ying, to increase housing supply, the latter had sought to suppress demand too.

It's ironic and sad that CY's trademark policy to set aside sites exclusively for local homebuyers backfired to fuel the market instead, after a mainland developer splashed out a fortune to secure the first such site, which brought a miserable end to the policy.

Efforts to stem housing demand have failed.

But Lam isn't dealing with the demand side. Perhaps she knows it would be futile, since the elephant in the room has been the endless supply of capital from the mainland that can readily fill any void in the market. The SAR is just too small to protect itself from the flood.

Mainland capital has been disrupting market order, not only here but also elsewhere around the globe. In some countries like Australia, foreigners are banned from buying certain types of properties. New Zealand, for instance, joined the list recently with even more draconian rules banning foreigners from buying residential properties - unless they plan to redevelop them into more units, or convert them for non-residential uses.

Is Lam prepared to go as far to keep outsiders out of the local residential market?

Experts have been warning home prices won't go up forever. Those heeding the advice may be regretting it. However, when so-called experts are unanimous in predicting another year that will see an uptick, could there be a chance for an anti-climax - just as everybody believes otherwise?

There are two outstanding factors of concern in 2018. Hong Kong is bound to follow the US Federal Reserve in increasing interest rates, probably in mid-year. Otherwise, capital would flow out of the territory in search of destinations promising higher returns.

Also, after strengthening his leadership, President Xi Jinping has secured a freer hand to deleverage risky loans in the mainland, and tightening the grip on capital outflows. What could it mean for us if Xi is successful in closing the gate?

Housing prices have been surging at a record speed. The question is how much longer the rise can sustain.

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