Mild housing measures help clear policy overhang

Fundamental price drivers like too much market liquidity and low interest rates will remain unchanged even with the new housing measures put in place by the HK government, the Deutsche Bank AG/Hong Kong said Thursday.

In a statement, the bank said it finds the new housing measures of the HK government to be too mild.

“We believe that the policy digestion period to be shorter this time around. And the physical property market will likely resume its strong uptrend sooner than expected. We expect only marginal impact on the physical market,” Deutsche Bank said.

Chief Executive Tsang earlier unveiled measures to stabilize the HK property market that include removing real estate investment from the Capital Investment Entrant Scheme; introducing an enhanced subsidized-housing scheme – the “Rent First, Buy Later” scheme; and limiting GFA inflation to 10%.

Deutsche Bank said the new measures are unlikely to lead to significant declines in property prices, while there would likely be a drop in activities in the physical property market in the near-term as it takes time for people to digest the new measures.

Deutsche Bank added that the HK property market should remain strong as long as liquidity remains strong and interest rates remain low.

Deutsche Bank said home purchases by Chinese nationals via the scheme made up less than 1% of total market transactions since the Capital Investment Entrant scheme was introduced in October 2003 to September 2010.

Deutsche Bank noted that most mainland buyers that come to HK to purchase homes are not buying via the scheme and so even though the government has removed Real Estate as a category in the scheme and it is unlikely to affect purchases by the mainland Chinese.

In addition, while some market participants feared that the “My home purchase plan” would likely take away demand from the private residential market, with only about 1,000 of such flats to be completed by 2014, we believed that the scope of the plan is just too small to matter.

Comparing the housing policies between Hong Kong and China, Deutsche Bank said they believe that from the point of view of mainland Chinese buyers (who are an important source of buyers for the Hong Kong property market now).

Deutsche Bank said the policy environment in Hong Kong is still much more preferable relative to that in mainland China, even after the introduction of the new measures by the Hong Kong government during the latest 2010-2011 policy address.

The more favorable policy environment in our view will continue to attract buying interests from the Mainland, and there is now increasing potential for the strong Mainland demand to spill over to the mass-end segment where we see even stronger yield support.

We expect to see more solid transaction volumes and property prices in the Hong Kong residential market than in the China residential market due to a more lenient policy environment from the point of view of mainland homebuyers. Any significant pullbacks in the share prices could present opportunities to pick up the higher-quality Hong Kong developers, like SHKP and Sino Land.