The real estate market in Hong Kong has escalated and buyers must watch out for a bubble forming, said Justin Chiu, Executive Director of Cheung Kong (Holdings) Ltd.
“The rise is a bit unusual,” said Mr. Chiu in an interview. “There should be a correction at some point.”
Low mortgage rates and buying by affluent mainland Chinese drove a 29-percent gain in HK home prices in 2009. According to Norman Chan, Chief Executive of the Hong Kong Monetary Authority, as high liquidity and low interest rates drive up prices, the asset markets in the city face a ‘huge’ potential risk of a bubble forming.
According to forecasts by Cheung Kong, prices of luxury homes may increase 15 percent this year, and prices for new residences in the mass market segment may climb from 15 percent to 20 percent.
“House prices now are still almost 50 per cent below the 1997 high and affordable to households,” said Buggle Lau, Property Chief Analyst at Hong Kong-based Midland Holdings Ltd. “It is too early to call it a bubble.”
From June 2009 to January 2010, Hong Kong prices increased around 40 percent, and buyers must not expect a similar pace of growth in prices this year, said Mr. Chiu. “When people make their buying decisions, they should be cautious. Low interest rate environment will not last forever.”
CB Richard Ellis Group Inc said that luxury home prices in Hong Kong, which is defined as those costing about HK$10 million (S$1.83 million) or larger than 1,000 sq ft (92.9 sq m), may increase 20 percent this year; whereas non-luxury home prices may rise 15 percent.
The HK government has taken “appropriate steps” to caution investors about overheating in the market. It will also increase land supply this year to curb gains in home prices.
At the close of trading in Hong Kong, Cheung Kong soared 0.6 percent to HK$90.65. The shares rose 37 percent last year, underperforming Hang Seng Property Index’s 66 percent advance.