Morgan Stanley says Hong Kong's housing sector bottoming out
Home prices in the city are set to bottom out, driven by an influx of mainland Chinese buyers, improved capital markets and a recent plunge in interest rates, analysts led by Praveen Choudhary said in a report dated June 19.
'While we may be early, we see several reasons to be optimistic that we could be at the onset of an up cycle, which could last four to five years,' the analysts said.
Mainland buyers are bolstering Hong Kong's residential market, as the city's rental yields now surpass those in tier-one Chinese cities, fuelling increased investment demand. Additionally, a recovering capital market is generating a wealth effect that further supports housing demand, they added.
The lower interest rates will also support the market. The one-month Hong Kong Interbank Offered Rate is hovering at the lowest level in three years after plunging last month.
However, challenges remain with a surging number of unsold apartment inventory, rising underwater mortgage cases, and an increasing unemployment rate in the city, according to the report. Some developers will still have a hard time operating despite a recovering market. The bank cautions on New World Development because of its liquidity crunch.
Morgan Stanley expects home prices to stop their decline and grow 2 per cent in the second half of the year. BLOOMBERG
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