13 April 2012
RICS Global RE Weekly: Hong Kong house prices likely to remain flat despite recent pick-up in activity
Key macroeconomic indicators for March including figures such as retail sales, inflation, unemployment, and the trade balance are released in the upcoming two weeks. February results have conformed with our expectations that Hong Kong’s growth should cool off, yet continue at a moderate pace. However, there is room for disappointment in the course of 2012 given ongoing uncertainty around global conditions. Inflation moderated to 4.7% in February, compared with 6.1% in January. Inflationary pressures are expected to continue to ease, albeit at a slow and gradual pace, as rents remain relatively high and surging oil prices would likely re-spark inflation fears. Meanwhile, the HK Rating and Valuation House Price Index increased by 3.4% in February on a year-on-year basis. This was a slower rise than the 5.1% increase in January and registered the eighth consecutive month of moderation. It is noteworthy that property transaction volumes and prices have picked up slightly since late January, possibly driven by stronger demand and investment appetite. Accordingly, the number of new mortgages approved for house buyers, though still 53% less than last January, rose by 47% to 5,836 from 3,975 in January. Moreover, the number of new loan applications jumped 83% month on-month. The rebound is likely to be short-lived and it does not materially change our view that house purchase activity and prices should remain flat in the near term.
Euro area construction sector outlook remains negative
Euro area construction output data for February is due on Wednesday 18th from Eurostat. Taking a three month moving average of the data to smooth through the monthly volatility, output is about 3% up on year ago levels but still 20% below its January 2007 peak. The headline data, however, masks considerable regional divergences. Again, focusing on the three month moving average, output in Germany is 5% above its last peak, in France it is still 10% below it while in Spain, output is 55% below its peak.
Japanese demand for loans remains muted
A more positive picture is emerging in Japan, which should see the wider economy rebound this year after contracting in 2011. The manufacturing PMI has been above the expansionary mark of 50 for four months in succession, with the March reading the highest since August last year. Moreover, the continuing global recovery is doing no harm to exports, which are beginning to trend upwards. This backdrop means the data released over the approaching fortnight could crystallise our belief the economy will continue to improve through the remainder of this year. Industrial production and construction spending for February are released on Tuesday 17th, while the following week will see construction orders and housing starts for March published.
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