Hong Kong’s Property Market Recovery Will Be Short-lived, Says Economist
by Mary Swire, Tax-News.com, Hong Kong
19 October 2004

The recovery in Hong Kong’s long depressed property market will be a short-lived affair and rising prices will be curtailed by long-term pressure on wages and population growth, an economist predicted yesterday.

“The fundamentals for a strong property market (e.g., strong wage increases or population growth) are not here. If anything, the competitive pressure from Guangdong will continue to exert deflationary pressure on Hong Kong," argued Morgan Stanley economist, Andy Xie, according to Reuters.

Xie explained the recent bounce was a combination of a number of factors, including pent up demand following the SARS crisis, historically low interest rates and the conflict in Iraq.

However, according to Xie, the Hong Kong government may be forced to raise interest rates by 100 basis points in the coming months in line with expected rate hikes by the United States Federal Reserve, slowing growth in the property sector.

House prices in Hong Kong have risen approximately 25% this year, with prices having risen 40% since the market hit an historic low in 2003.

Evidence of the recovery in the territory’s property market was witnessed last week when a government land auction fetched a record HK$14.1 billion (US$1.8 billion) for two plots of urban real estate.

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