UBS eyes higher China/HK property prices through 2010

The property markets of China and Hong Kong will experience significant price gains throughout the rest of 2009 and into 2010, according to a UBS forecast.

Thanks in large part to global money supply, ample China liquidity and poor returns on bank deposits, UBS believes Hong Kong's homes and offices will rise 32% and 29% respectively between June 2009 and December 2010, while China's home prices will increase 20% over the same period.

Eric Wong, head of Asia real estate research at UBS investment bank, says Hong Kong's property market is in a far stronger position than during the 1997 financial crisis because of strong liquidity.

"With global money supply rising following the quantitative easing measures enacted in 2008, ample Chinese liquidity impacting Hong Kong through its increasingly porous border, and HK$3 trillion ($375 billion) of domestic net cash suffering from zero deposit rates, we expect to see significant price rises of 32% for homes, 29% for offices and 12% for retail spaces, and rent rises of 11%, 28% and 14% respectively," says Wong.

UBS is also positive on China's property market for a number of reasons. The Chinese government has set a 2009 real GDP growth rate of 8% and this has been the basis for almost all policies issued since the target was announced.

UBS notes that since China's property sector was classified as a vital pillar industry, the sector's operating environment is far looser than it was in 2008.

Capital raising activities by developers has meant that liquidity pressures on them have eased and increased their ability to hold properties longer in return for higher prices. Plus, improved investor appetite has seen inventories shrink with the increase in demand not being met by an increase in construction.

The Chinese property market began to record increasing transaction volumes in November 2008, with many cities in recent months recording sales close to or higher than the 2007 peak level. UBS has raised its home-price forecast from 5% for both 2009 and 2010 to 20% for 2009-2010 combined.

"We don't consider our 20% price increase as aggressive; from the end of 2008, China's overall residential prices have risen by 8.5% and over 10% in many large cities," says Wong.

Meanwhile, the Asian Public Real Estate Association (Aprea), which represents and promotes the real estate sector across the Asia-Pacific region, has also painted a positive outlook for the entire region. At its annual property forum held earlier this year to discuss the current issues and challenges facing the industry, the consensus was that Asia is in better shape than the rest of the world and liquidity still exists, with China providing many opportunities.