Will Home Prices in HK Fall?

Analysts say that despite new initiatives, prices may stay high, but demand crunch may be slightly alleviated by the higher supply.

Kate Lin, CAIA 13 October, 2021 | 16:49
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In Hong Kong, the average wait time for public housing is almost six years. Carrie Lam, Hong Kong SAR’s chief executive, puts housing issues at the forefront of the last policy address in her current term as the city’s leader. In her recent remarks, Lam suggested some new land-related initiatives, which could impact the demand-supply dynamics in the property market.

One of these initiatives is the ‘Northern Metropolis’ proposal, aimed to develop the northern part of the New Territories, which at present is predominantly agricultural lands. The project aims to create as many as 600,000 units over a 10-to-15-year period, from 2031 onward. The project includes a planned railway extension to Qianhai.

According to Michael Wu, senior equity analyst at Morningstar, if approved, the project would transform underdeveloped farmland into homes. He sees it as a positive for property developers operating in Hong Kong, as these plans could enable property developers to use their agricultural landbank in high-yielding residential businesses.

In addition to the government’s recent efforts in identifying brownfield sites to increase land supply for public housing, there are worries that residential property prices might come under pressure. Wu explains that the additional expected supply is likely to come into the market gradually and as a result he does not expect a sharp decline in prices.

“We also note overall supply housing units are expected to remain around 20% below total unit demand over the next five years,” Wu adds, citing the Long-Term Housing Strategy Annual Progress Report from the Transport and Housing Bureau. He thinks the demand for living spaces would continue and remain supportive of prices. Therefore, there is no change in our fair values for the Hong Kong developers and they remain undervalued.

Name

Ticker

Price / Fair Value 

Morningstar Rating Overall

Total Ret YTD (Mo-End) USD

Dividend Yield % TTM

New World Development Co Ltd 00017 0.70 5 -10.82 6.08
Henderson Land Development Co Ltd 00012 0.74 4 3.70 5.61
Sun Hung Kai Properties Ltd 00016 0.70 5 -1.84 4.91

Source: Morningstar

 

Watch Out for Executive Risks

As the chief executive put it, these plans are for the long-term. Wu says that before any plans are materialized, execution remains one of the primary risks.

He explains: “[Execution risk] is not confined to the current chief executive and the policy address. Historically, the Hong Kong government, through multiple leaders’ terms, struggled with land supply and in meeting the demand for affordable housing.”

Another concern for people investing in real estate is that gentrification would only benefit the project region or the neighborhoods nearby. Wu sees limited risks and believes demand drivers for the Northern area and the rest of Hong Kong would be varied. From the information on hand, he doesn’t expect a ‘one-for-one impact’ where prices at New Territories increase at the expense of the rest of Hong Kong.

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Henderson Land Development Co Ltd28.70 HKD-1.37Rating
New World Development Co Ltd27.20 HKD-1.63Rating
Sun Hung Kai Properties Ltd93.20 HKD-0.43Rating

About Author

Kate Lin, CAIA

Kate Lin, CAIA  is a Data Journalist for Morningstar Asia, and is based in Hong Kong

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