Bulls run wild on property
Thursday, November 08, 2007
Property counters were the major gainers as the Hang Seng Index rebounded by more than 700 points in the past two days.
Dr Check believes property shares will continue to shine in the next six months.
Centaline's Property Agency Index, which tracks secondary property prices in Hong Kong, climbed from 53 in January this year to 59.36 last Friday - a gain of 12 percent.
The index plunged from a peak of over 100 in October 1997 to as low as 33 in 2003 during the SARS crisis. It hovered between 53 to 55 in 2005, then moved sideways till early this year.
Centaline forecasts the index to rise to 74 by August 2008, which means a 24.6 percent potential upside in average secondary property prices.
Of course, the chart does not mean everything. We have to look at fundamental factors.
A weakening US dollar has drawn funds into currencies which fetch more interest such as the Australian and Canadian dollars and the euro.
Under the peg system, Hong Kong dollar assets have become cheaper to foreign funds.
A drop in US and UK property prices will mean more demand for Hong Kong units, where returns are better as the territory has been immune from the subprime crisis. With gold and commodities rising due to the faltering greenback, property assets in Hong Kong look more attractive. This becomes more so with negative interest rates in Hong Kong , as inflation now standing at 2.7 percent is higher than the savings interest rate of 2.25 percent.
Other factors have also helped the property market - wage increases, particularly in the financial sector, lower unemployment and more government spending on infrastructure.
Profits from the stock market allow the middle class to move to bigger homes while richer people can switch to luxury housing.
Then there is the emergence of wealthy home buyers from China.
Suddenly, the local property market is blessed with so many positive factors. Tomorrow we'll see if it is too late to join this rally. Disclaimer: Dr Check and/or The Standard bear no responsibility for any investment decision made based on the views expressed in this column.