Wednesday, October 5, 2011

Hong Kong Property Shares Look Cheap

The whiff of recession trailing in from the U.S., Japan and several European economies has sharply undercut Hong Kong real-estate shares, some of which are off 40% or more from the peaks. "The market seems to have discounted over a 50% drop in residential and office prices," says Jonas Kan, analyst for Daiwa Capital Markets. He says the selloff is "clearly overdone," since the shares' depressed values don't reflect underlying physical assets or corporate fundamentals.

Housing prices have fallen only marginally—on average 5% or so over the past three months—despite property stock prices that reflect some sort of Armageddon. Mortgage rates for most first-time home buyers remain affordable, at 3%, and money continues to flood in from rich mainland Chinese investors, who make up nearly 30% of buyers of new property developments. Analysts say it is unlikely that prospects for Hong Kong real estate will get worse unless there is a sharp rise in the current 3.2% unemployment rate in the city-state—something seen as a long shot, given the mainland's high growth rates. Overall, Hong Kong's deposit base has grown to HK$7 trillion (US$898 billion), from HK$2.7 trillion in 1997

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