Property frenzy rides on inflation fear and stock doldrums

money-glitz | Victor Zhong 10 May 2021

The recent property market boom was fueled by capital switch from the stock market, anticipations of potential inflation and southbound purchasing power but an academic warned those who want to buy for investment to be cautious.

The bullish sentiment in the property market is expected to continue especially the fact that people have a belief of "sell in May" for the stock market, which has been lackluster since March. This comes as local investors have rushed to buy flats, sending the weekly home price-tracking Centa-City Leading Index soaring to an 84-week high at the end-April.

Local property market saw phenomena that it has not happened for years. For instance, homebuyers rushed to buy a home without viewing, some deliberately took a day off for buying a flat, as they worried that the seller would increase the price or would sell the house to the other. In the primary market, RK Properties has received 5,500 cheques for the 240 units of South Land in Wong Chuk Hang it put on the market, making it one of the new projects that had attracted the largest number of potential buyers this year. All units were sold out within days at an average price of HK$31,000 psf. There were 161 investors who brought more than one unit.

In fact, after undergoing social unrest and the pandemic in the past two years, Hong Kong's situation has started to stabilize which drew institutional investors to return to the local property market even earlier than the individual investors. Mainland developers have been buying lands in the New Territories as they are cheaper than Shenzhen. Also, developers' confidence recover as Sun Hung Kai Properties (0016) pays HK$8.6 billion to secure a residential site in Kwu Tung, 40 percent more than estimate. As early as end of last year, an investment consortium led by fund managers Gaw Capital

Partners and Schroders Pamfleet acquired the CityPlaza One office building in Hong Kong from Swire Properties (1972) for HK$9.84 billion. Institutional investors are also buying shops eyeing recovery in the retail market.

Individual investors also follow the trend. This is especially the fact that the number of people being able to afford to own a home has increased. Stock investors had made handsome gains from both the local and the US stock markets earlier this year, said Sammy Po Siu-ming, chief executive of Midland Realty's residential division. He adds that government's measure of allowing first-time homebuyer paying only 10 percent of the property prices between HK$6 million to HK$10 million as downpayment, also means that people can buy a home with less than HK$1 million cash with them.

The Hang Seng Index rose as much as 14.5 percent to the year-high 31,084.94 points on February 17 before retreating by 8.65 percent to 28,610.65 points last Friday. In the US stock market, the three major indexes rose 5-13 percent so far this year.

The benchmark Hang Seng Index is expected to trade at 29,000 points at the end-2021, estimates Kenny Ng Lai-yin, a securities strategist from Everbright Sun Hung Kai, which means not much room to grow from current level at 28,611 as of last Friday.

Believing that home prices will further rise amid abundant money supply and low-interest rate environment, some buy for hedging inflation, Billy Mak Sui-choi, associate professor of finance and decision sciences at the Hong Kong Baptist University explains.

Signs of inflation are seen globally due to supply shortages of various sectors from raw materials, food, to electronic products and logistical challenges caused by the pandemic. In addition to the abundant capital, consumer demands also rise sharply. Local inflation in March only rose by 0.5 percent year on year. However, some economies like Brazil, which is a major global supplier of raw materials and food had an interest rate of 75 basis points.

The one-month Hibor, a benchmark of the local mortgage rate stood at 0.07881 percent on Friday, the lowest in 11 years.

Some are expecting mainlanders will come over to buy homes in Hong Kong after the pandemic. According to a Midland survey, about one-fifth of homes costing HK$30-50 million were taken by Chinese mainlanders.

Despite the bullish sentiment, buyers are advised to better buy for self-use as there are other factors to watch out.

Ng of Everbright Sun Hung Kai reminds homebuyers that property as an asset class is less liquid than equity, stressing one could only expect home prices to rise steadily over a period of 10 years. HKBU's Mak says it takes around six to eight years to earn back the extra stamp duty paid when buying a home.

Also, home prices and rents are going towards an opposite direction, making a low rental yield. The trend is expected to remain, says Knight Frank executive director Thomas Lam, as the pandemic situation is yet to stabilize that hinders expat and mainlanders from coming over and also more locals can afford to buy their own home now. He expects home prices will rise by 3-5 percent this year.

Average rents fell to HK$33.60 psf for 107 large private housing estates in the first quarter, a 12.4 percent drop in 10 consecutive months, data from Centaline Property Agency shows.

Property investors may get a rental yield of merely 1 percent for some new projects.

Besides, homeowners have been selling their properties to migrate overseas since 2019. Bloomberg Intelligence estimates that Hong Kong homeowners may sell as much as HK$150 billion worth of property this year when residents emigrate to the UK.

Also, despite 7.8 percent economic growth in the first quarter, other data show that Hong Kong economic recovery path is yet to be stabilized as jobless rate stood at 6.8 percent in March and retail sales in March grew by 20.1 percent year on year, way lower than the estimate of 34 percent.

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