Analysts: Hong Kong Prices Could Fall 30 Percent

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Home prices in Hong Kong could fall as much as 30 percent by the end of 2015, after years of skyrocketing valuations, analysts say.

"The Hong Kong property market is about to enter its first real downturn since 1998," Barclays analysts Paul Louie and Zita Qin wrote in a report circulated yesterday.

Several firms have posted negative ratings for Hong Kong's property sector, but Barclays is taking a more aggressive stance by predicting prices could drop 30 percent.

"The magnitude of the fall is underestimated," Barclays wrote.

Hong Kong home prices more than doubled since 2009, fueled by low interest rates and a wave of wealthy buyers from mainland China. But sales have dropped to the lowest point since 2008, after the government imposed new restrictions, including increased taxes on foreign buyers.

Barclays joins UBS, Bank of America and other analysts in predicting Hong Kong's residential market is due for turnaround. Several factors should work to drive down prices, including the government regulations, a slowdown in income growth and an increase in supply.

New Hong Kong chief executive Leung Chun-ying has vowed to increase the supply of land available for residential development. The private sector may sell 67,000 homes in the next few years, compared to the 48,936 units completed from 2008 to 2013, the lowest volume in a five-year period since data was compiled in 1985, Bloomberg reports.

Deutsche Bank expects prices to fall 15 to 20 percent in the next year.

"We see the recent high profile price cuts in the primary market as a clear sign of a change in pricing direction," Deutsche Bank wrote in a recent report. We expect to see a more meaningful decline in secondary prices in the coming months on the flow-on effects," it said.

Deutsche Bank predicts prices could drop as much as 50 percent "from peak to trough" in the cycle.