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China's and Hong Kong's property prices to post significant rises in 2009 and 2010
China's and Hong Kong's property markets will experience significant price gains throughout the rest of 2009 and into 2010, says UBS. Driven by global money supply, ample China liquidity and poor returns on bank deposits, UBS believes Hong Kong's homes and offices will rise 32% and 29% respectively between June 2009 and December 2010, while China's home prices will increase 20% over the same period.
"Because of liquidity flooding into Hong Kong, its property market is in a far stronger position than during the 1997 financial crisis. With global money supply rising following the quantitative easing measures enacted in 2008, ample Chinese liquidity impacting Hong Kong through its increasingly porous boarder, and HK$3 trillion of domestic net cash suffering from zero deposit rates, we expect to see significant price rises of 32% for homes, 29% for offices and 12% for retail spaces, and rent rises of 11%, 28% and 14% respectively," says Eric WONG, Head of Asia Real Estate Research at UBS Investment Bank.
"We are also positive on China's property market for a number of reasons. The Chinese government has set a 2009 real GDP growth rate of 8% and this has been the basis for almost all policies issued since the target was announced.
"Because the property sector was classified as a 'vital pillar industry' the sector's operating environment is far looser than it was in 2008. Capital raising activities by developers has meant liquidity pressures on them has eased and increased their ability to hold properties longer in return for higher prices. In addition, improved investor appetite has seen inventories shrink with the increase in demand not being met by an increase in construction.
"The Chinese property market began to record increasing transaction volumes in November 2008, with many cities in recent months recording sales close to or higher than the 2007 peak level."
"UBS has raised its home-price forecast from 5% for both 2009 and 2010 to 20% for 2009-2010 combined. We don't consider our 20% price increase as aggressive; from the end of 2008, China's overall residential prices have risen by 8.5% and over 10% in many large cities," said Wong.