Property bubble still a risk in Hong Kong, it is claimed

WEDNESDAY, 11 APRIL 2012

Hong Kong’s Financial Secretary has warned that there is still the risk of a property bubble as prices hit record highs. John Tsang said that if there are signs of overheating in the property market he will introduce more cooling measures and he warned property buyers not to blindly follow the market. ‘I remain highly concerned about the risk of a price bubble,’ he said, adding that the government is determined to increase land supply to try to maintain more stable property prices. Hong Kong’s housing prices have increased by more than 70% since the start of 2009 helped by record low mortgage rates and an influx of mainland Chinese buyers. Prices have risen almost 4% this year, after falling about 5% in the second half of last year, according to figures from the Centaline Property Agency. The property agency said rich investors were switching from cash to property amid the panic caused by the sovereign debt crisis in Europe. So many foreign executives are arriving in the former British colony that international schools are overcrowded, rents are sky high, and bars and restaurants are jammed. Prices of second hand flats on Hong Kong Island have hit a record high, bolstered by improved sentiment and limited supply. Indeed, the Centa City Leading Index, shows home prices on Hong Kong Island edged up 1.37%  week on week to 112.3 during the week of March 26. It surpassed the previous peak of 111.88 in the week of June 5, 2011. Average price of flats at Taikoo Shing in Quarry Bay, a popular housing estate on Hong Kong Island, increased to HK$10,400 per square foot at the end of March from HK$9,500 per square foot at the year end of last year.The index is based on a complex formula that takes into account different areas of the city and different flat sizes. The index uses July 1997 as the base period, when its value was equal to 100. Wong Leung-sing, Centaline's senior associate research director, said property prices had surged over the last few months partly because the European Central Bank had pumped more than €1 trillion (HK$10.14 trillion) into the banking system. ‘People do not want to hold cash, and some richer people have switched to buying property, which can better preserve their wealth,’ Wong said. ‘Hong Kong Island is home to more people in the middle and high income groups, so it's not surprising that prices hit a record high first. But looking forward, I don't think home prices will climb too quickly as the new government may dish out more proactive measures to at least maintain sufficient land supply,’ Wong added.