[I-bank focus]Morgan sees flattish property prices in 2018

   Morgan Stanley believes 2018 will be a story of two halves for Hong Kong property market.
  In 1H, the research house sees developers achieving high ASP and a strong sell through rate for projects driving positive sentiment. It expects demand to be supported by positive wage growth, low unemployment, a strong stock market and Chinese demand. This could result in property prices rising by 5%.
  But in 2H, Morgan see several headwinds developing, resulting in property prices declining by 5% and full year primary volume declining by 10% on shrinking pre-sale pipeline and lower investment demand.
  Historically, HK property stocks relative performance tracked well against the average secondary price index (Centa-City Leading Index - CCL) and primary sales volume. If mortgage rates increase by 100bps, residential prices may decline 7% for the same affordability ratio, Morgan estimated, despite improving household income. 
  It remains cautious on the Hong Kong residential market. Despite improving economic
growth, rising rates remain the key risk. It expects residential prices to be flattish in
2018, and is concerned about HIBOR and Prime rate hikes despite healthy supply/demand.
  However, Morgan sees downside risk in both price and sales volume, especially in 2H 2018 if prime rates increase as banks have warned. Morgan also expects peaking primary sales volume growth to decline by 10% after rising 13% YoY in 2017.