Investment banks are bullish on Hong Kong's real estate market, predicting sharp price rises as early as next year.
Goldman Sachs forecast residential prices to rise up to 30% each year in 2008 and 2009, while Merrill Lynch expects them to increase 50% by the end of 2009. Shares of local developers surged after the reports were released.
Capital values of luxury residential units will rise 25 percent to 30 percent annually for 2008 and 2009, according to Goldman Sachs, while the mass market has a growth rate of 20 percent annually over the same period. The estimate is backed by strong economic growth and higher wages as a result of low unemployment.
Larger-sized flats have climbed 18 percent on average so far this year while mid-sized apartments have risen 8 percent. Goldman Sachs said larger housing units will outperform smaller ones, continuing a trend since the revival of the private residential market in late 2003. The investment bank raised the target prices of local developers to reflect the better outlook.
SHKP and Kerry are Goldman's top picks because they have higher exposure to luxury or high-end residential properties. Merrill Lynch's preferred stock is Henderson Land Development, whose price forecast it raised to HK$87 from HK$73.
SHKP, which had dropped 17% since it sold HK$10.9 billion worth of shares on October 29, jumped 6.62% yesterday to HK$141.60. Kerry edged up 1.02 percent to close at HK$64.65. Henderson gained 3.82 percent to HK$65.20.
Merrill Lynch says it is "maximum bullish" on the property market as it sees strong pent-up demand after several years of low primary transactions. It said the government's policy on environmental protection and heritage conservation will result in low land supply and a "structural housing shortage".