US investment bank Goldman Sachs has joined a chorus of property market observers forecasting an increase in Hong Kong home prices this year.

"Given high property prices, very low-interest rates but an improving economy, we expect gradual property price increases in line with household income growth for the residential market," the bank said in a report led by analyst Gurpreet Singh Sahi. "We believe [an] easing of Covid-19-related border restrictions between Hong Kong and mainland China would benefit the sale of luxury residential flats, Central office take-up and retail premises' rent."

Optimism is growing for home prices to climb and break records as concerns about recession, rising unemployment and the coronavirus pandemic have largely subsided recently. Some industry reports, such as retail sales and brisk sales at new launches, are pointing to early signs of recovery in the city's economy.

The city's residential property prices have already risen 4 per cent year-to-date, and Goldman said in its June 4 report that it expected a 5 per cent rise for this year. Prices could rise by another 5 per cent in 2022, as the border opens up, before easing to a 3 per cent gain in 2023.

As far as retail and industrial property was concerned, the bank expected a recovery of 5 per cent this year after a "painful" 2019 and 2020. "We believe prices have corrected meaningfully and that retail sales are rising in Hong Kong and mainland China. Year-to-date prices have recovered post their steep correction over the last two years," Goldman said.

Office prices would, however, decline 5 per cent this year, be flat next year and record a modest recovery of 2 per cent in 2023. "We believe this market could continue to be pressured by the work-from-home dynamic, but the negative force [will] be somewhat offset by the Hong Kong-mainland China border opening," Goldman said.

Hong Kong property developers were seeing their best relative performance since 2012, driven by a notable pick-up in residential market transactions, prices and low-interest rates, the US bank said.

Centaline Group, the major Hong Kong property agency, was the most bullish and expected a 15 per cent surge in home prices in 2021. Home prices were likely to see a breakthrough in the third quarter and this will be followed by an obvious rising trend, founder Shih Wing-ching said on Tuesday. Prices were only 2 per cent to 3 per cent below the record in 2019, he added.

The agency's Centa-City Leading Index, which tracks home prices in 100 housing estates, stood at 185.16 as of last month, just 2.8 per cent lower than the peak of 190.48 in June 2019. Shih said his forecast had not even taken into account the reopening of the border.

"With short supply and an improved economy, people have regained their confidence in [the] property market, particularly luxury homes," he added.

For instance, a 3,695 sq ft flat at Sino Group's St George's Mansions, a luxury property in Ho Man Tin, sold for HK$260 million (US$33.51 million) on Tuesday. The price was the highest for flats in Kowloon this year, according to the developer.

US bank Morgan Stanley and real estate agencies Cushman & Wakefield and Knight Frank have also forecast home price rises of 3 per cent to 5 per cent. Morgan Stanley estimated in a report in April that Hong Kong home prices will rise 3 per cent in 2021 and 5 per cent next year, driven by a combination of low supply, decent demand, low interest rates and limited scope for tighter regulation.

Cushman said on Tuesday that home prices were expected to rise by 5 per cent in the second half of this year and return to their June 2019 peak in the third quarter.

The agency said that the economic recovery in Hong Kong had driven a residential transaction upsurge by 20 per cent quarter on quarter, which had reached a nine-year high and a peak since 2012. New home supply over the next two years remained low at an average of about 19,100 units per year, it added.

Additional reporting by Nancy Ping and Bobo Chan

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