23/10/2018-3

UBS’s pessimism in the property market fell 15% during the year

The atmosphere of the property market in Hong Kong has turned weak. The private residential property price index of the Department of Differential Assessment has finally broken the cable after 28 months of continuous growth. The major banks have predicted that property prices will turn downward. Mark Haefele, the chief investment officer of UBS Wealth Management Global Chen Minlan, Chief Investment Officer of Asia Pacific, published a monthly report on investing in the Asia Pacific market. It is predicted that property prices in Hong Kong may fall by 15% in the next six to 12 months, mainly due to the rebound in interest rates and the increasingly obvious signs of economic slowdown in China and Hong Kong. To. The bank said that compared with real estate developers, they prefer Hong Kong commercial real estate stocks and housing funds (REITs), but overall it is still bearish on Hong Kong stocks, suggesting a reduction.

Interest rate increase caused by negative spreads

UBS’s pessimistic view of Hong Kong’s property market has clearly deepened. The bank expects property prices to fall by 5% to 10% by the end of next year in August. Yesterday, the forecast decline was extended to 10% to 15%. The bank pointed out that the increase in the prime rate in Hong Kong raises concerns. If the interest rate rises by another 75 to 100 basis points, when the mortgage rate rises above the rental rate, the negative interest rate effect will appear, but at the same time, unless the Chinese economy slows down more than expected. Seriously, otherwise, due to the current tight supply of housing and the expected completion of projects, the decline in property prices is limited.

In August, UBS explained the reasons for the decline in property prices, including the fact that Hong Kong’s future mortgage interest rate will be raised by 50 to 75 basis points, and the potential impact of the Sino-US trade war on the macro economy has not yet surfaced, and it is likely to further crack down on property prices.

For the sake of not being able to flatten the rent

UBS analysts pointed out that the Hong Kong Interbank Offered Rate (HIBOR) rose, bringing a headwind to the property market. In the past three months, HIBOR has risen sharply. It has risen by 80 basis points year-to-date, with an increase of nearly 150 basis points in two years. It has reached a 10-year high of 2.1%. The bank expects HIBOR to continue upwards in 3 months, up to 2.6 per cent in 6 months and 2.9% in 12 months. The Bank of Hong Kong raised the prime rate by 12.5 basis points after the US Federal Reserve raised interest rates by 25 basis points at the end of September, the first increase in 12 years.

The report describes Hong Kong property prices closely related to the macroeconomic situation and economic prospects. The steady economic growth, tight supply and low interest rates in the past few years are the reasons why domestic and foreign buyers are optimistic about the Hong Kong property market. As Hong Kong’s GDP growth rate is closely related to property price trends, China’s economic growth has slowed as Sino-US trade frictions have intensified, causing property prices to fall from the August 18 high. About 2 percentage points, the year-to-date increase has narrowed from 14.3% to 12.4%, which is the first time since mid-2015.

According to Liu Yuanyuan, the chief vice president of the Meridian Mortgage Referral, the interest rate in the fourth quarter will inevitably rise. The range of 25 to 50 basis points is still moderate, but the rate hike cycle will span 2020, when the interest rate rises to 3% and 4%. I am afraid that the pressure on the property market in Hong Kong will no longer be like the fact that about 90% of the properties are now “flat renting". For the users, buying a building is not an inevitable choice and reducing the desire to enter the market.

Call for reduction of Hong Kong stocks, transfer to China and South Korea

Liu Yuanyuan believes that the rebound in interest rates does not mean that property prices will fall, and the trend of property prices will depend on supply. The “deficit" situation will continue in the next three to five years. In the fourth quarter of this year, the pressure on the property market mainly came from the periphery, such as the trade war haze and the economic situation in China, and the impact was greater than the interest rate hike. However, she added that the increase in interest rates increased the cost of property investment, while the rental return declined, but the return level was not too bad, and property appreciation was still the biggest investment incentive.

In the stock market, UBS maintains bearishness in Hong Kong stocks and advises investors to “short positions” in Hong Kong, Taiwan, the Philippines and Malaysia, but proposes to “add positions” to the stock markets of China, South Korea and Singapore. In terms of the renminbi, the bank predicts that the renminbi against the US dollar will be consolidated in the near term in the near term, and will reach 7.3 by the end of next year.