Pricey Pad Points to a Defiant Hong Kong Market
Assistant Producer, CNBC
Recent measures by the Hong Kong government to cool one of the world's most expensive real estate markets may have dented transaction volumes, but property prices remain high and will continue to rise, analysts told CNBC on Wednesday.
Real estate firm Swire Properties made headlines on Tuesday after announcing the sale of a 6,683 square foot apartment in the Frank Gehry designed OPUS HONG KONG building for a whopping HK$455 million ($58.7 million). That works out to more than $8,700 per square foot — setting a record in Hong Kong, according to local reports. The deal comes after the sale of another unit in the same building back in August, for over $55 million.
While luxury property transactions may not represent the overall Hong Kong property market, Raymond Yeung, senior economist, Greater China at ANZ, said it does show that government measures have not been able to bring down prices even in the high end of the market.
"These measures will not be able to suppress the price, but will actually lift up the price, because of the underlying fact that demand for Hong Kong property is still very strong and very solid," Yeung told CNBC. "It seems that the buying appetite has cooled down, but that doesn't mean that the property prices will come down, because when you introduce tax that basically pushes up the property price."
In October, the Hong Kong government unleashed its third round of measures in recent months to cool property prices, which have jumped 20 percent in the first nine months of this year, due largely to an influx of Chinese buyers. Targeted at non-residents and corporates, they include a 15 percent tax on foreign buyers and a 5 percent rise in stamp duty on property transactions.
While monthly sales transactions have dropped "very sharply" following the announcement, the measures haven't had the desired effect of lowering prices.
"On the flip side, what that has done is driven capital into other sectors — retail, commercial, industrial and driven prices up," said Peter Churchouse, chairman of Hong Kong based property investment firm Portwood Capital.
Most market watchers expect limited impact from government intervention until the supply of housing dramatically increases.
"The prices are not going to correct given the increase in tax and at the end of the day, the supply is still very short," said Cusson Leung, managing director, equity research at Credit Suisse in Hong Kong. He expects property prices to rise another 5 percent next year.
Despite few signs of a cooling market, analysts aren't expecting further government measures anytime soon.
"These current measures are relatively hefty and the government needs to observe at least for four to five months before they decide to implement any other measures, otherwise there is a potential risk of overdosing," Leung said.
Hong Kong property prices have nearly doubled in the past five years, with the average price of a home in prime areas hitting about $4,400 per square feet at the end of 2011, according to real estate consultancy firm Knight Frank.
- Slideshow: The World's Hottest Real Estate Markets
Yeung, who estimates prices will jump from 5 to 10 percent next year, says the government will continue to face an uphill battle as hot money flows into Hong Kong.
"As long as there are capital inflows into Hong Kong on the back of quantitative easing from the U.S. and Japan, overall Hong Kong asset prices including property and the stock market are under upward pressure," Yeung said.
- CNBC's Jean Chua contributed to this story.