Chinese Property Bubble Looms

Knight Frank reports that the Chinese government will need to implement aggressive cooling measures if it expects to head off a property bubble as prices continue to rise, …

Knight Frank reports that the Chinese government will need to implement aggressive cooling measures if it expects to head off a property bubble as prices continue to rise, while the Hong Kong residential real estate market is expected to cool by 2014 thanks to longstanding measures still in effect there. Experts believe Hong Kong’s home prices may fall as much as 15% in the coming year, while the Chinese government contemplates a bevy of cooling options including a new property tax, increasing available land for development and stricter banking regulations. For more on this continue reading the following article from Property Wire.

Sales and prices of residential property in Hong Kong are expected to fall in 2014 due to continued cooling measures while in mainland China radical long term measures may be needed to cool the market.

Sales in Hong Kong are likely to fall to 45,000 to 50,000 next year compared with around 53,000 this year and over 80,000 in 2012. The prediction, from Thomas Lan, director and head of research and consultancy at Knight Frank’s Hong Kong office, means sales will fall below the last low of 2003 due to the SARS virus scare.

He believes that the 2014 sales market will continue to be dominated by primary sales, with beneficiary packages offered offsetting some impact of the cooling measures, while secondary sales will be further suppressed with primary prices being close to or even lower then secondary prices in the locality and lowering valuation of second hand units.

He also believes that most buyers will be end users, but investors will start to return to the market in the coming year.

The proportion of Chinese buyers in primary projects is expected to grow from the current around 5% to around 10%, well below the peak level of around 35% last year, while the proportion of corporate buyers is set to grow from the current around 10% to around 15% compared with the peak level of 20 to 30% last year.

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‘The market has turned and entered a downtrend. Residential prices will be heading south in the coming few years, but significant corrections are not expected amid a low mortgage rate environment,’ explained Lan.

He expects mass home prices to drop 10 to 15% in 2014, due to cooling measures and increased supply. Luxury residential prices will be more resilient, dropping 5 to 10% in 2014. The second half of the year will see more notable drop, as the market is expected to be supported by the release of previously accumulated purchasing power during the first half of the year, he pointed out.

He also reckons that supply in 2014 will focus on the New Territories, in particularly Tai Po, Tseung Kwan O and Yuen Long. In the coming year, around 18,000 new homes could become available for sale.
In the leasing market, luxury residential rents could drop 5 to 10%, while the mass sector will be more resilient, with rents dropping up to 5%, amid strong demand for small to medium sized units.

Meanwhile, with no further property market cooling measures for mainland China announced in the Third Plenary Session of the Central Committee held last month and the current policies only temporarily suppressing demand by restricting home prices and purchase, Helen Liu, general manager at Beijing Holdways Information and Technology, expects the Central Government to tackle the bubble problem via long term policies.

This could be radical, such as implementing a property tax, increasing land supply to prevent developers from competing for land with sky high prices and regulating bank loan policies to strengthen market mechanism.

She does not expect further cooling policies in the short term and said that in 2014 land in the core areas of first and second tier cities will continue to be seized by cash rich developers who have earned a lot in 2013 through issuing bonds and selling homes.

She predicts that residential prices in first tier cities will continue going up while super luxury home prices will be suppressed with decreased sales volumes and primary sales will be more robust than secondary with cooling measures continuing.

‘Residential prices in second tier cities will increase, at a slower pace compared with first tier cities. But some second tier cities may see price corrections, such as Wenzhou and Dongguan with bubbles, while some other cities may see price surges, such as Haikou with robust speculation activity,’ she added.

This article was republished with permission from Property Wire.


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