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Market Realities

2012 started with a gloomy outlook amid the hitherto unresolved Euro debt crisis and China’s decelerating economy; as investment sentiment in Hong Kong hit a low in recent years. It has become a majority view that the local economy will slide for the whole of this and possibly next year too. Against this backdrop, investors are staying put and end users are pushing back purchase decisions. In the high-end residential market, desperate sellers are widening negotiation margins to 10 per cent or more, where they used to be no more than five per cent.

In early January, Hong Kong’s Land Registry released annual figures for 2011, with total number of residential sales at 84,462 units including both primary and secondary sales, down 37.8 per cent from 2010’s 135,778 units. This compares with 2006 when the total sales were 82,472 units. In the years from 2007 to 2010, the sales figures were all well above that of 2011.

The following table traces the monthly sales of residential and non-residential units in the last two years. Apparently, sales activities plummeted since July 2011 due to a combination of adverse effects stemming from Euro debt crisis, the Hong Kong government’s stepping up of interference in the property market, the sliding stock market and continuing austerity measures on the mainland.

Source: Land Registry, Hong Kong Government

The property market is expected to remain sluggish for the next few months, as most negative elements at play are not expected to change in the foreseeable future. It will take much longer than everyone expected to see workable solutions for the Euro debt crisis agreed between Euro member countries. Italy, the third largest economy in the Euro Zone, is facing one of the most stringent tests in its history; and failure looms large. France, the second largest, is also facing a challenging economic reality. The whole of the Euro Zone is in chaos.

Back on home turf, more relaxed government policies towards the local property market are unlikely, as officials have repeatedly stressed determination to cool down the market. The Hong Kong stock market will continue to be plagued by bearish sentiment from worldwide financial woes and the economic slowdown.

However, there may be just a little help from across the border, as the People’s Bank of China starts to relax its credit control. Last week, Premier Wen Jiabao reiterated the need to support small to medium enterprises in selected sectors by offering preferential loans, which have been virtually put on hold since the beginning of the current round of the austerity programme. In an effort to maintain steady economic growth amid threats of a global recession, the Chinese government will have to loosen its tight capital control. We expect to see more relaxations in 2012, which will, to a certain extent, help boost confidence in Hong Kong’s investment market.

By Koh Keng-shing