Property transactions nosedive to 5-year low

Transactions plunged by more than a third last year while prices remained stubbornly out of reach.

Property prices in Hong Kong have skyrocketed over the past couple of years because of record low interest rates and a tsunami of rich and super rich buyers from the Mainland. The result: property transactions plunged by more than a third last year while prices remained stubbornly out of reach.

The government said property transactions plummeted to a five-year low in 2011. A total of 108,814 properties changed hands in 2011, down 33% from 162,739 year-on-year, according to the government's Land Registry. Properties that changed hands in 2011 were valued at $587.89 billion, 14.7% lower year-on-year.

One analyst described the decline as unusual and unhealthy since prices aren’t falling despite the sharp drop in transaction volume. Real estate prices have fallen, but only by about five percent on average from their peaks in June 2011.

The volume for 2011 is the lowest since 2006 when 99,087 deals were recorded, and illustrates the unrealistically high cost of real estate that is placing homes out of reach of more and more of Hong Kong's citizens.

And this despite a series of measures to curb prices that included new taxes and a series of land auctions to boost supply and bring down prices. Hong Kong home prices have soared nevertheless, dismaying would be property owners in a city that has gained an unwanted reputation for grossly overpriced real estate.

One analyst noted these policies were meant to curb speculating activities but are now hurting the market instead.

The great fear now is that owner-occupiers may start selling, causing in a sharp fall in prices much worse than in 2008. This might be triggered by a worsening of the euro-zone debt woes.

The reluctance of these owner-occupiers to sell their properties has been identified as a factor in sustaining the high cost of real estate by dampening supply.

Government data released two days ago also showed home sales plunging 54 percent year-on-year to 4,301 units in December.

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