Hong Kong property cooling down

A prized plot of land in Hong Kong sold for 20 per cent less than analysts expected this week, suggesting the overheated property market may be losing some of its sizzle.

Sun Hung Kai Properties paid HK$3.12bn ($400m) for a 13,393 square-metre residential parcel in Tseung Kwan O, the Financial Times reports.

Two plots auctioned in August also sold for less than estimates, a sign developers are wary of the market's ability to sustain the huge, global-economy-defying price jumps of recent years.  

The auction "further confirmed the falling confidence among developers for home prices...and delivered a clear message that developers are expecting a weak housing market," concluded Andrew Lawrence, a Hong Kong-based analyst at Barclays Capital.

Recent reports have suggested that government measures to cool the market haven't been working. Prices rose 20 per cent in the last year--and 70 per cent since 2009--according to some estimates

But many observers believe the market may have peaked.

"Property prices will start to decline soon and we are likely to see that in the rest of the year," Yu Kam-hung, a senior managing director for CB Richard Ellis Group told Bloomberg. "Prices will trend down by about 10 per cent in the next two years and I don't rule out the chance that they may fall as much as 20 per cent in the worst case scenario."

Prices have fallen 3 per cent in the last two months, the FT reported. But property firm Knight Frank believes the market fundamentals will keep Hong Kong prices high.

"Previous experiences show that Hong Kong's residential market only witnessed substantial corrections when prices became unaffordable, interest rates were rising and supply was excessive," Knight Frank reported. "The purchasing power of potential buyers and the holding power of flat owners are expected to remain strong in a healthy economy."

The lack of new construction will continue to place a premium on homes coming on the market, with mainland Chinese among the most active buyers, the property firm said.

"Supply of residential units, which is expected to average 15,300 per year from 2011 to 2017, will likely fall short of demand given that take-up over the past 20 years averaged 19,500 units per year," Knight Frank said.