Worst Is Over for Hong Kong Property Prices, Citigroup Says

(Bloomberg) -- The worst is likely over for Hong Kong's residential real estate market and home prices should resume their upward trajectory from this month to rise as much as 10% by the end of the year.

That's according to Citigroup Inc., which also said in a report dated May 4 that now is a good time for investors to buy the shares of Hong Kong retail landlords on expectations of a pick up in consumer activity.

Developers that look attractive are Sun Hung Kai Properties Ltd. and New World Development Co., while landlords in the bank's sights include Hang Lung Properties Ltd. and Wharf Real Estate Investment Co.

Home sales in the city have started to rebound as the spread of coronavirus comes under control. Last weekend was the best weekend for secondary apartment sales since 2013 as buyer confidence returned, according to Centaline Property Agency Ltd.

A shortage of suitable land on which to build housing, teamed with low borrowing costs, has also long put a floor under Hong Kong's real estate market, ensuring prices are well supported.

“Back in February, buyers thought prices could slump and were looking for discounts of up to 20%,” said Kenneth Lam, a senior sales director at Centaline who oversees the west Kowloon area popular because of its good transport links. “A month or two later, they realized that strategy wasn't going to work when transaction volumes kept rising.”

Property prices in the secondary market have declined just 1.3% since the start of the year, Centaline data show. That's despite the Covid-19 outbreak coming on the back of months-long pro-democracy protests. From June through December, they slipped 4.4%.

“Due to strong memory of SARS in 2003 and the 2008 global credit crisis and Hong Kong home prices rebounding strongly after, a lot of potential buyers are likely to get in as interest rates are expected to be staying low for a long time,” Citigroup analysts led by Ken Yeung wrote.