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HONG KONG: Economists warn that Hong Kong's property market is facing a possible bubble burst in 2010. This comes after property deals in the city hit record highs in 2009.
Experts said the luxury market could take a breather next year, as the sky-high prices are simply not sustainable.
Although Hong Kong's economy was still on shaky footing in 2009, mass residential property prices soared by around 30 per cent. Developers said the price hikes were fuelled by record-low mortgage costs and near-zero interest rates.
Consultants believe there was a disconnection between the property market and the real economy. They also said that tightened supply has put pressure on buyers.
"If you look at supply figures, last year only 8,800 units were completed. So far in nine months this year, 5,500 units have been completed. Now that compares with 30 and 40 and 50,000 that we were talking about a number of years ago," said Nicholas Brooke, chairman, Professional Property Services Ltd.
Luxury property prices jumped even more, by about 40 per cent.
A local businessman forked out about US$3,850 per square foot for a unit in the Masterpiece development in Kowloon district - a record price for a one bedroom apartment in Hong Kong.
Another purchaser, believed to be a wealthy buyer from mainland China, set a new world record after forking over US$57 million for a 6,000-square-foot apartment in Hong Kong's upmarket mid-levels district. That is US$9,200 per square foot.
In response, the Hong Kong Monetary Authority cut the mortgage limit on property worth HK$21 million or more to 60 per cent.
But economists warned that much of the prime property market has been fuelled by hot money from mainland buyers and investors, rather than end-users. And some said Hong Kong could be facing a property bubble burst in 2010.
Raymond So, finance professor, Chinese University of Hong Kong said: "If the bubble did burst, of course the property prices will fall by at least 20 to 30 per cent for sure.
"With that decrease in property prices it will hurt the other asset markets, like the stock market. And the wealth effect generated from the drop in the property prices and the asset prices will deter private consumption, and the economy will contract."
The government has said it may resort to increasing land supply to cool prices. And if it does not intervene, consultants said mass residential prices could rise a further 15 to 20 per cent next year.
However, consultants said the sky-high prices in the luxury market are simply not sustainable.
Mr Brooke said: "Although there will still be properties which still fetch what are regarded as very high prices because of people's egos, people that want to demonstrate that they are very wealthy, etc ... nothing to do with values.
"So there will be exceptions in terms of the luxury market. But generally the luxury market will take a bit of a breather."
Economists said that there is no doubt Hong Kong's property sector is in for a correction, but they don't expect that to happen in the first half of next year, as there is still plenty of liquidity in the market.
- CNA/sc
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