Economy

HK property market set to slow down

By Anna Kitanaka (China Daily)
Updated: 2010-04-15 09:43

HONG KONG: The city's residential property market will probably slow in the next two months as expectations grow that China will allow the yuan to appreciate, Credit Suisse Group AG said in an Asian market report on Tuesday.

A higher yuan may damp investment in Hong Kong's residential real estate because it would mainly benefit yuan-denominated assets, Cusson Leung and Joyce Kwock, Credit Suisse research analysts, said in the report. They maintained their "market weight" rating on the Hong Kong property sector.

"Mainland investment demand for Hong Kong dollar-denominated assets during a period of appreciation is likely to slow," Leung and Kwock wrote. Hong Kong luxury home prices jumped 45 percent last year, real estate broker Savills Plc said. The city's economy grew 2.6 percent in the fourth quarter from a year earlier, the first expansion in five quarters.

China, which relies on manufacturers to help create jobs for 230 million migrant workers, may allow the yuan to appreciate by June 30, a Bloomberg survey of analysts showed.

China will safeguard "its own economic and social development needs" when deciding exchange-rate policy, President Hu Jintao said in Washington on Monday. Allowing the currency to strengthen would temper inflation after a 17 percent surge in import prices in March from a year earlier saw China post its first trade deficit since 2004.

China's government unleashed a $1.4 trillion lending boom last year to stimulate the economy and is now trying to slow the surge in property prices.

Prices soar

The Hang Seng Property Index has surged 46 percent in the past 12 months and valuations are at 17 times estimated earnings, compared with about 14 times for the Hang Seng Finance Index and for the Hang Seng Commerce and Industry Index.

"The residential market had a strong run" in the first quarter of 2010 "and we believe the price-growth momentum will slow in the next few months", Leung and Kwock wrote. "Especially when the pressure of renminbi appreciation is imminent, investment demand might shift from Hong Kong property to renminbi-denominated assets," they wrote.

China may allow the yuan to appreciate to curb inflation while avoiding a one-time jump in value that could hurt exports, according to a Bloomberg News survey of 19 analysts. The median estimate in the survey is for the yuan to strengthen 3.1 percent to 6.62 per dollar by the end of this year.

Speculation on when and how the yuan will begin appreciating escalated in the past week as US Treasury Secretary Timothy Geithner met Vice-Premier Wang Qishan in Beijing after delaying a decision on whether to label China a "currency manipulator".