Hong Kong’s decade-long increase in property prices is coming to an end as spending by mainland tourists declines and mortgage costs rise, according to UBS Group AG.
The CHART OF THE DAY tracks the city’s monthly rental gauge for shops and restaurants against a sales price index of the smallest apartments. Both measures were at record-highs in January, according to the most recent government data.
The lower panel shows changes in Hong Kong’s retail sales, which sank 14.6 percent from a year earlier in January, the most since 2003.
Retail rents more than doubled from their June 2003 low and prices of apartments of 40 square meters or less jumped more than fivefold as the central government allowed more mainland Chinese visitors and Hong Kong’s currency peg to the dollar kept borrowing costs near record lows. With U.S. interest rates poised to rise and China’s anti-graft campaign cutting demand for luxury goods, store leases and apartment prices are set to fall, according to UBS analyst Eva Lee.
“We are expecting a 5 to 10 percent drop in new property prices this year,” and a 5 percent decline in shop rents, Lee said in an interview in Hong Kong. “Once the high-end or mid-tier retailers start cutting their shops, it’s going to hit the macro economy.”
Wharf Holdings Ltd. and Hysan Development Co., among the landlords who benefited most from tourist spending over the past decade, had their stock ratings cut in the past week by Citigroup Inc., which said in reports the “golden age” for high-end retailers is over and the outlook for rents is “bleak.” Sales at Wharf’s Times Square mall in Causeway Bay, home to the world’s second-most expensive rents last year, fell 29 percent in December from a year earlier, according to Morgan Stanley. UBS has neutral ratings on Wharf and Hysan.
Hong Kong last month required buyers of properties valued at up to HK$7 million ($900,000) to make larger down payments, after previous rounds of cooling measures aimed at more expensive housing spurred demand for smaller properties. The Hang Seng Property Index has fallen 4.8 percent since the new measures were announced, compared with a 3.5 percent drop by the benchmark Hang Seng Index. The Federal Reserve meets on Wednesday to debate the timing of what could be the first U.S. interest-rate increase since 2006.
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