Property prices in Hong Kong are expected to stay on an uptrend, according to analysts.

They noted that despite government measures to cool the sector, home sales rose to its highest level in almost 3 years last month, and the latest land auction also exceeded estimates.

Residential sales in Hong Kong rose by 33 per cent in value last month, underscoring strong demand fuelled by a record low interest rate environment.

Last week, a plot of land in the Kowloon Tong district sold for US$165 million, 26 per cent higher than estimated – a signal that developers are still bullish on the sector despite tighter mortgage rules and increased supply.

The government is trying hard to cool the market, but at the same time, it is also being careful.

“What they are worried about is that they don’t want to see a correction. I mean we have 1.2 million families that own their own homes. You can imagine the furore, the fuss, if those people suddenly saw their homes which they spent a lot of money on, which is their main investment, suddenly fall in value by between 20% and to 30%,” said Nicholas Brooke, chairman of Professional Property Services.

Increasing land supply is probably the least controversial move the government can make, as well as making it harder for speculators to borrow.

Hong Kong home prices have surged by 45 per cent since the beginning of 2009, with luxury home prices at record levels.

And with interest rates at 20-year lows, analysts said there’s likely to be another 5-10 per cent upside for the luxury and mass market segments in the second half of the year.

Still, it is clear that first-timers home-buyers and those climbing the property ladder are feeling the heat.

Brooke said: “The 30% deposit seems to be the big hurdle for some people. I think if we can find some way of phasing that, or help people to borrow… I’ve suggested a number of options to the government.

“The other option is the UK model I’ve described. You make the developer provide up to 30% of affordable housing as his obligation. That way, you make the responsibility rest on the development community.”

Brooke, a former member of the Hong Kong Housing Authority, believes that the market in 2010 is on track to break last year’s record in terms of the number of units sold.

Real estate prices in Hong Kong have almost reclaimed their peak of 1997, even though the economy has barely grown since then, in per-capita terms.

One big difference between now and then, is that according to the affordability index, home prices today are still comparatively more affordable, at around 45 per cent of household income.

Source : Channel NewsAsia – 7 Sep 2010