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Monday, December 18, 2017, 16:06
Outside the box
By Peter Liang
Monday, December 18, 2017, 16:06 By Peter Liang

At the end of every year, economic analysts and commentators are obliged to offer their market forecast for the coming year. In doing so this year, many soothsayers have put forward the obvious prognosis.

The common view shared by many is that the property market, having risen uninterruptedly for more than 14 months, is due for a correction in 2018. Such assumption seems to make eminent sense at a time of rising bank interest rates and tightening credit.

Most analysts are predicting a gradual decline in average home prices by 10 percent to 20 percent. A price crash is widely seen as most unlikely because the market is underlined by strong demand from prospective home buyers.

That demand was fueled by escalating prices which gave many prospective home buyers the impression if they don’t buy now, they will never be able to afford it later. A major factor that has pushed up prices was widely attributed to the inflow of overseas capital.

Official data shows that overseas buyers accounted for only a small proportion of the total transactions in Hong Kong properties. But those figures didn’t include purchases of homes by locally registered corporations, whose sources of capital are hard to track.

Under such circumstances, the question is whether it’s possible for property prices to correct, or retreat, in 2018 without triggering a sell off that would result in a rout.

Most overseas investors would hold off from buying Hong Kong properties when they detect the onset of a down cycle. This would induce those who already own properties to quickly realize their gains by selling off part of all their holdings.

When that happens, local demand will simply dissipate because prospective home buyers will want to delay their decisions hoping prices will fall further.

In this feverish market, mild and gradual price adjustment is nothing more than wishful thinking. The local property market has come to the stage that home prices can either continue to rise or they will sink like a rock. 


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