Home prices in Hong Kong may be entering a “bubble” amid soaring liquidity and government efforts to cool the real estate market, said JPMorgan Chase & Co.
Residential property values-to-gross domestic product has surpassed the city’s peak of 3.13 times in 1997 and may “overshoot” to 3.5 times in 2011 based on the brokerage’s estimate of a 15 percent growth in home prices next year, said analysts headed by Lucia Kwong in a report.
“This shows that economic growth cannot catch up with asset price growth or liquidity is likely to channel mostly into properties and little to other segments,” they wrote.
“The battle between policies and liquidity will continue in the next nine to 12 months,” they added.
In November, after the International Monetary Fund (IMF) warned that asset inflation may derail Hong Kong’s economy, the country intensified its battle to curb escalating home prices by introducing additional taxes and policies.
This move by the government comes after an over 50 percent increase in home prices since the beginning of 2009, exceeding the 1997 peak due to influx of mainland Chinese buyers and record-low mortgage rates.
The city’s currency peg to the dollar prevents its de facto central bank from increasing interest rates.
The analysts said the unexpected measures illustrate the government’s determination to curb increasing prices.
‘Cash-rich investors’ who do not depend on mortgage financing and intend to hold their properties for over two years should not be affected, they added.
Funds from the US Federal Reserve’s plan to improve acquisitions of bonds may boost capital inflows and raise the city’s asset prices in the next six to nine months, said analysts.
The brokerage firm prefers office and shopping mall landlords to property developers as retail sales during the holiday season are expected to be good, driving rents higher.
Among its top picks are Hong Kong Land Holdings Ltd, Hysan Development Co and Wharf Holdings Ltd.