HONG KONG: The city's real estate has shown early signs of regaining its status as hot property, with a new housing project getting a warm reception. But, where some experts see recovery, others see just a speculative bubble.

Last week's launch by Lake Silver, a new joint venture residential project between Sino Land and MTR Corp, drew tens of thousands of prospective homebuyers despite a summer downpour - a strong showing shortly after top lender HSBC slashed its savings rate to near-zero, boosting the attraction of the 4-5 percent average annual rental yield for property investments.

Hong Kong home sales between May 1-26 were close to 11,000 units, the highest since February 2008, and surprisingly strong for a traditionally slow month ahead of the school summer break.

The early signs of a potential rebound have lit a fire under major Hong Kong developer stocks. Since early March, shares of sector leaders Cheung Kong (Holdings) and Sun Hung Kai Properties have jumped more than 70 percent, while Sino Land has nearly tripled.

"The recent strength in the property sector was an adjustment to the earlier over-pessimism," said Wong Leung-sing, director of research for Centaline Property Agency Ltd.

Like others, Wong attributed the rebound in home sales to low interest rates and a volatile stock market which have driven investors to property in search of better returns. But he said the jury was still out on whether a recovery is really underway.

"If June figures track the strong numbers in May, it's quite safe to say a market recovery is on the way," he said.

Developers are playing it safe by pricing new projects well below their early 2008 peak, reflecting lower optimism on a rapid price recovery. Home prices are back at their pre-Lehman collapse level, after sliding 15 percent from their March 2008 peak.

Others suggest it is still too early to call a recovery, and the recent run-up in property stocks could be too much too fast.

"I won't suggest investors chase after property stocks as the positive factors are pretty much reflected in the surge," said Patrick Yiu, a director with CASH Asset Management.

Sino Land, a proxy for the Hong Kong residential sector, now carries a net asset value (NAV) premium of close to 18 percent, according to Citigroup research, making it among the most expensive stock in the sector. Likewise, Sun Hung Kai carries a rich NAV premium close to 10 percent.

Cheung Kong, at a NAV discount of 16 percent, Hang Lung Properties and Kerry Properties, with their exposure to the Chinese property sector, are seen as safer bets.

Even after real estate price declines over the last year, Hong Kong properties still command significant premiums over major mainland cities like Beijing, Shanghai, Shenzhen and Guangzhou, according to Citigroup.

"Comparatively, Chinese property is a better bet as it seems to have more room on the upside after a plunge in mainland property prices last year," said Yiu.

With economic fundamentals still weak, heady property stock valuations suggest the market may have run ahead of itself.

"There are people who worry they will miss their chance to buy property if they don't move now, but this is a short term factor that will drive demand," said Nicholas Yeo, Hong Kong and mainland equities manager at Aberdeen Asset Management.

"In the long term, there is uncertainty over the magnitude of an economic recovery, if we have one."

Reuters

(HK Edition 06/02/2009 page4)