Beijing's macro-economic control measures on the mainland property market have reduced Hong Kong home-buyers craving for mainland properties, with most of them waiting for the right time to enter the market as prices are expected to drop further.

Hong Kong home-buyers are likely to spend less on mainland properties this year due to the central government's recent measures to cool the overheated housing market, Hong Kong property agency Centaline said.

The property agency estimated that Hong Kong buyers would reduce their investment in the mainland property market by 8 percent to 10.75 billion yuan (US$1.3 billion) or, in terms of number of flats, by 4 percent from the 18,500 units purchased last year.

Midland Holdings Executive Director and CEO for China operations Kwok Ying-lung noted: "The previous feverish buying by Hong Kong investors is now a thing of the past as the risk of investing in mainland property is escalating and so Hong Kong investors are thinking twice before making investments at this uncertain time."

"The effect of the cooling down measure has still not been fully felt yet," Kwok predicted.

"Property prices in Shanghai will plunge by 50 percent and prices of Shenzhen and Guangzhou properties will fall by 20 to 30 percent by the end of the year."

The measures are arguably having an immediate effect on reducing property sales as well as on the volume of mortgage lending.

Home prices on the mainland recently slowed down by 2.3 percentage points from a 13.6 percent gain in the first four months of the year to an average of 11.3 percent in the first five months, according to the National Bureau of Statistics.

Mortgage lending slowed accordingly and was 12.1 percent lower than in the same period of last year, growing by just 25.1 percent to 2.5 trillion yuan in the first quarter, according to the People's Bank of China.

However, the extent of the drop so far is less than that predicted and Hong Kong buyers are waiting until the process of consolidation is complete before entering the market again.

Despite Hong Kong buyers adopting a conservative attitude towards the mainland property market, Hong Kong industry participators still believe that continuing investment in the mainland market is a way of boosting their stocks performance in the Hong Kong market.

Chairman and CEO Vincent Lo of Shui On Land, a leading Hong Kong property developer in the mainland market, said: "Anti-speculation measures are reasonable as property prices in Shanghai have risen rapidly in the previous three years and the cooling down measures are more to consolidate the overheated market than about strangling the entire market."

Giving a vote of confidence to the market, Lo said he would continue to push ahead with the planned 10 billion yuan (US$1.2 billion) project to build the Chuangzhi Tiandi residential and commercial development in Yuhang, along with the Hangzhou city government.

Lo suggested that the measures would have a positive impact on the Shanghai property market in the long term.

"Despite property prices having fallen in recent weeks and property buyers taking a wait-and-see approach, the prospects for the property market are good." he added.

Vice-chairman Francis Lui of Ka Wah group, another prominent Hong Kong property developer, said he also supported the measures.

Lui revealed that the company's high-end property project in Yangpu district in Shanghai, which has about 700 residential units due to go on sale mid-year, would not be affected by the general market downturn because of the strong demand for quality units.

However, the full raft of macro-economic measures has already had a negative impact on property developers, as well as on projections of the market's future profitability.

Guangzhou R&F Properties, the mainland city's largest developer, planned to make its debut on the Hong Kong stock exchange on July 14, in the hope of raising up to HK$2.21 billion to finance its mainland property projects, but received no offers for margin finance from securities firms and the response from both the retail and institutional sector has been lacklustre.

The sales performance of Hong Kong-listed mainland property developers has been hit by the withdrawal of buyer interest and confidence in the market's profitability.

Chief Financial Officer Lin Chu Chang of China Resources Land, a unit of State-owned China Resources Holdings, disclosed that since the introduction of the macro-economic control measures in the mainland, property sales in Beijing and Shanghai had seen a 30 percent drop month-on-month in May.

Beijing Capital Land, the property arm of the city's municipal government, has also issued a profit warning because of the impact of cooling down measures on the real estate market.

However, Guangzhou R&F Properties vice-chairman and president Zhang Li brushed aside the gloomy market sentiment and noted: "Property is an important pillar of the Chinese economy, so the government will not crack down on it. They only want to adjust prices to a more reasonable level."

(China Daily July 14, 2005)