Hong Kong Seen Leading Home-Price Growth in 2011 as Bounce Ends

Hong Kong home prices will probably increase the most worldwide next year as a “post-crash bounce” loses steam and values settle at more sustainable levels, real estate broker Knight Frank LLP said.

Growth in Hong Kong may slow to 12 percent in 2011 from 18 percent this year as government efforts to rein in the market take effect, the London-based adviser said in a report today, giving predictions for 22 locations. Russia and Malaysia were the next best, with estimated increases of at least 10 percent.

Hong Kong’s authorities are trying to slow property-price gains to avert a bubble driven by record-low interest rates and demand from wealthy buyers from mainland China. The Asia-Pacific region has led a global housing recovery since 2009, with values hurt less by the financial crisis than in the U.S. and Europe.

“In almost all cases, the leading Asian housing markets are substantially higher than the levels seen before the credit crisis,” Liam Bailey, Knight Frank’s head of residential research, said in the statement. “Industry experts in Asia seem to feel that the continent cannot escape weakening market conditions.”

Yesterday, Hong Kong Monetary Authority Chief Executive Norman Chan joined Financial Secretary John Tsang in expressing concern about the risks of a real estate bubble.

The city’s government raised down payment ratios and pledged to release more land for development as prices have risen about 47 percent since the start of 2009. Similar steps have been taken by China’s government to curtail real estate gains in its largest cities, where values advanced 68 percent in the first quarter from a year earlier.

Singapore, Australia

Knight Frank expects average home prices in China to rise 5 percent next year, down from 6.5 percent growth in 2010. The slowdown will extend to Singapore and Australia, which depend on China and Hong Kong for trade, the broker said.

Tax increases, public spending cuts and prospects of higher interest rates will probably curtail buyer demand in France, the U.K. and Canada, which have enjoyed 18 months of gains driven by low borrowing costs and government economic stimulus. Prices probably won’t appreciate by more than 2 percent next year in those three countries, Knight Frank predicted.

Prices in the U.S. will remain “relatively static” during the next 18 months, following a 31 percent slide from a peak in mid-2006, the broker said.

‘Real Test’

“The real test for market resilience, especially in Europe and the U.S., is likely to come at some point in 2011 when interest rates begin to climb from their current historic lows,” Bailey said. “On our measures, the U.K. is one of the markets most at risk from this process.”

In the Baltic states of Latvia and Lithuania, among the worst-performing markets, there are signs that values may be bottoming out, according to Knight Frank. The slide in prices may also be slowing in Ireland and Spain.

Funding constraints in the West have limited the number of development projects and will lead to an undersupply of housing, which will support prices beyond next year, the broker said. The exceptions will be in the U.S., Spain and Ireland, which have a significant oversupply of homes.

The following table shows Knight Frank’s predictions for home prices for a selection of markets:

Market 2010 2011
Hong Kong 18 12
Russia 8.8 11.3
Malaysia 0 10
Sweden 4 6
China 6.5 5
Singapore 10 3
Switzerland -5 3
U.K. -3.3 2
U.S. -1 1
Canada 3.5 -0.9
Spain -4 -2
Ireland -11 -3

Source: Knight Frank. Other markets covered: Italy, Australia, Brazil, Norway, Germany, Monaco, South Africa, France, Latvia and Lithuania.

Article by: Simon Packard - www.bloomberg.com