Fewer Property Deals Being Done in Hong Kong

JANUARY 4, 2012   THE WALL STREET JOURNAL

By POLLY HUI

HONG KONG—With the market volatile and mortgage rates rising, the number of property transactions in Hong Kong fell to a five-year low in 2011, the city's largest real-estate agency said Wednesday.

Property prices were up through the first 10 months of the year, though with a decline in the latest months, and analysts warned if external factors such as the euro-zone debt crisis continue to worsen, prices could turn down more steeply than during the 2008 financial crisis.

The number of property sales in 2011 was down 33% from a year earlier, to108,814, according to Centaline Property Agency, the lowest total since 2006, when 99,087 transactions were recorded. Property prices rose 11% in the first ten months of 2011, government statistics show, although they fell 4% between July and October.

"This is an unusual and unhealthy phenomenon. Despite the sharp fall in transaction volume, prices aren't really dropping," said Wong Leung-sing, associate director of Centaline's research department.

Mr. Wong said the development was mainly a result of measures imposed by the government to curb speculation, including a tax introduced in November 2010 on sales of properties within two years of purchase. With speculators mostly out of the market, owner-occupiers were reluctant to sell, holding down supply and so supporting prices.

But "if there is a triggering event such as a further deterioration of the euro-zone debt woes, owner-occupiers may start selling, resulting in a sudden fall in prices that could be much sharper than in 2008," he said.

Hong Kong property prices fell about 12% in the six months after September 2008, when the global financial crisis hit the territory. But prices gradually picked up in 2009.

Government statistics released Wednesday showed sharp declines in the number and value of residential property transactions in December. At 4,301 units, the number was down 54% from a year earlier and 10% from November. Value, at 25.7 billion Hong Kong dollars (US$3.3 billion), was down 36% from a year earlier and 28% from November.

The decline in transactions over recent months comes as mortgage rates rise, albeit from a low base of less than 1% for some adjustable-rate loans. The price increases in early 2011 came on the back of a 24% surge in 2010, as abundant liquidity and persistent low interest rates buoyed the market.