The Hong Kong property market saw is strongest quarterly growth in the second quarter of 2012 since the middle of 2009, according to the latest quarterly report covering the Asia Pacific region from Knight Frank.

Quarter on quarter price growth jumped from 1.8% in the first quarter to 8.4% in the second quarter in the Hong Kong residential market as sentiment improved and pent-up demand drove up transaction volumes, it says.

The ongoing uncertainty in the world’s economy however continues to have an impact on markets, in more ways than one. On the one hand, weaker economic growth has impacted sentiment and in some cases the wealth of buyers, on the other, property as a hard asset continues to be regarded as a safe investment choice, reinforced by inflation and often negative real interest rates.

This situation continues to be further complicated by government intervention into various property markets, which has continued through 2012, with Hong Kong, Singapore, Indonesia and Malaysia notably recently introducing further cooling measures.

Fear that activity from central banks in the Eurozone, Japan and especially the US could lead to excess liquidity finding itself into property markets this side of the world, means that it is unlikely that any of the cooling measures will be lifted in the short term.
 
While a number of countries are loosening monetary policy as the global economic slowdown continues, the conflicting policy objectives of boosting economic growth while avoiding excessive asset price appreciation means that government intervention in various forms is likely to continue.

However this increase in prices has been met by further government policies to cool the market, with the recent announcement of further lending restrictions and 10 measures to increase housing supply.
 
The supply measures include the sale of 830 Home Ownership Scheme (HOS) units in Tin Shui Wai early next year, putting 1,000 flats in Tsing Yi up for sale at a discount under the My Home Purchase Plan and speeding up the approval process for pre-sale flats.
 
‘The increase in supply will contribute to the healthy growth of the market in the long term, the immediate impact however is limited, as only about 1,000 units will be added to the market in the short term,’ said Thomas Lam, head of research for Greater China.

The report also points out that while prices in luxury developments remained stable last month, there have been a number of record transactions in the market, notably the Opus which recently sold a unit for US$55 million which puts it in the zone of the most expensive in the world.

It also points out that it has become apparent over the last few months that the Chinese economy is slowing down, with growth now projected to come in under 8% in 2012, the lowest growth rate since 1999.

‘Despite this relative slowdown, the strong drivers of demand for residential property remain, and have ensured liquidity remains relatively high. The central government has shown no signs of lifting the cooling measures in the market, which has seen an uneven performance over the last six months with certain cities still showing strong price growth,’ said Nicholas Holt, Knight Frank research director, Asia Pacific.

Shanghai and Beijing have seen a 7.1% year on year drop in prices as of the end of the second quarter of 2012, although prices in the affordable segment of the market have continued to increase, indicating real end user demand.

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