Overall residential property prices in Hong Kong soared 13 percent in 2014, mainly driven by small- and medium-sized apartments, government data show, and analysts predict that local home prices will rise another 5 percent at most in 2015.

According to Rating and Valuation Department data, the price index of mass residential apartments in December rose to a record-high of 277.6, representing the ninth straight month of increase and an annual hike of 13 percent compared to December 2013.

The small- and medium-sized apartment market continued to outperform, with the price index of this segment rising 15 percent from a year earlier, outperforming the mass residential apartment market.

The residential rental market also fared well, with private home rents in December in the city rising 6 percent compared to a year earlier, registering hikes for the 10th month in a row.

Looking ahead, real estate analysts predict that local home prices may be stable or rise another 5 percent at maximum this year, even though the government is striving to boost residential apartment supply and an interest-rate hike by the US is expected in the second half.

Yu Kam-hung, senior managing director at real estate services firm CBRE, is optimistic that local home prices can reach another 5 to 10 percent higher.

"If the low interest rate environment continues, home prices in Hong Kong have little room for downward correction," Yu said. "Even an annual completion of 14,600 private residential apartments in the next five years, as postulated by the government, really is not a huge step to alleviate housing shortage in the city."

Chief Executive Leung Chun-ying said in his mid-January Policy Address that private developers will on average produce about 14,600 apartments each year in the next five years, representing an increase of more than 30 percent.

Yu is also bullish on the small- and medium-sized apartment market, saying this segment has room for further price hikes.

Jonas Kan, property analyst at Daiwa Capital Markets, is also positive on the Hong Kong property sector.

"While the land supply will likely increase, we do not expect the pace to be rapid, and we see potential new external demand for property in Hong Kong to offset any slackening of local demand," Kan noted.

The investment bank is also not worried about the expected US interest-rate hike in the middle of the year taking a toll on the local home market.

Kan said: "We do not think low interest rates are the primary driver for the Hong Kong property market since the second half of 2013, but rather that the key driver is Hong Kong's emergence as a larger metropolitan city, and we expect this to continue."

oswald@chinadailyhk.com

Driven by strong demand, the small-and medium-sized apartment segment outperformed the market as a whole in 2014. Jerome Favre / Bloomberg

(HK Edition 02/06/2015 page8)