Investors scramble to dodge the burst of property price bubble

Cycle is becoming alarmingly 'unstable'.

According to Barclays Research, liquidity continues to expand the Hong Kong property price bubble, but the cycle is becoming increasingly unstable.

Here's more from Barclays Research:

Despite reducing our near-term negative view on property prices – mid-term we still expect a major correction – we find little value in the sector and recommend de-risking property developer positions. In addition, the consensus nature of investor positioning within the sector concerns us – every investor expects to get out before the bubble bursts.

The road to revulsion: The property cycle appears to have reached the euphoria stage; driven by momentum trading and an over-estimation of future returns. Yet further property price rises are likely to induce additional government measures to choke off liquidity and force supply on first-time buyers, who can ill-afford current prices. A first-half rally in property prices followed by a pull-back is the most likely scenario for 2013, in our view.

Bubble riding: Most investors see the property bubble – but at the same time have been compelled to invest in it, we believe, confident they can get out before it bursts. Yet an almost universal reliance on the same information – US interest rates – suggests all will head for the exit at the same time, or ignore the alternative risks to a price correction.

Money allusion: Although stocks are trading on wider-than-average NAV discounts, their premiums to pre-bubble book values suggest they are far from cheap. Greater downside potential in values and the increasing probability of a material price correction over time warrants wider NAV discounts and lower share prices, in our view.

Hunting value: Given the strong liquidity inflows we raise our 12-month price targets, yet we continue to remain firmly negative on the sector. Our preferred stock within the sector remains Cheung Kong (OW); we would avoid Henderson Land (UW, downgrade from EW), Sino Land (UW) and NWD (UW, downgrade from EW). We recommend de-risking portfolios by switching to property investors and lowering beta exposure, and through portfolio hedging.

The year-end rally: The risk to our view is largely from a year-end equity market rally, although concerns over the US fiscal cliff and China's Central Economic Work Conference in December should act to dampen some year-end risk taking, in our view.