HONG KONG: Authorities should fine-tune their land supply policies to help developers acquire land more easily, so as to avoid the forming of "terrible" bubbles in the local property market in the future, the Swiss banking group UBS says.

"Bubbles have yet to be seen in the local property market" despite a strong rally in the market over the past several months, Eric Wong, Head of Asia Real Estate Research at UBS, told reporters yesterday.

After hitting bottom at the end of last year, sales of residential properties have surged in the past few months.

In May, the number of residential units that changed hands totaled 11,788, the highest level since March 2008, and up from a trough of around 5,000 units.

Meanwhile, property prices have risen by 21 percent on average from their low last year following the financial crisis.

Currently, the property market is still healthy as speculative activities remain "subdued", while homebuyers' leverage remains low, he explained.

Confirmor sales - a key indicator for the extent of speculation in the property market - currently account for less than 1 percent of total transactions, he noted.

Confirmor sale occurs when a purchaser (confirmor) signs a purchase agreement with the original owner but immediately resells the property to another purchaser before completion of the first transaction to reap a quick profit.

However, Wong warned that terrible bubbles could form in the property market by the middle or end of next year, as tight supply will provide a further boost to property prices that will have been driven up significantly by ample liquidity.

Overseas money has been continuously flowing into the city in the past several months, flooding the financial market.

Meanwhile, the new housing supply in the city has dropped to almost a 5-year low.

Latest figures from the Transport and Housing Bureau show that units available for sale fell 9.26 per cent to 49,000 units at the end of June from 54,000 at end-March. This was the lowest supply level since the third quarter of 2004, when supply data were first recorded.

Wong expects the new housing supply to stay at "record low" levels for the next 3-4 years.

"The government's land supply policy has lagged behind the market," the analyst said.

There is a need for the authority to fine-tune its land auction mechanism to help developers acquire sites more easily, he said.

He also urges the government to sell more land to private developers instead of to public housing agencies.

Earlier this week, UBS forecast price rises, from their current levels, of 32 percent for residential properties, 29 percent for office space and 12 percent for retail space by the end of 2010.

(HK Edition 07/31/2009 page3)