Mid-term: AverageAh July. Half way through the year. It’s the time when your kids bring home their report cards, your boss is giving everybody a grade in the mid-year appraisals, and property agencies are casting their predictions where the market is heading.

Some are of the belief July 1 is a turning point. Not only is it a time for leadership change, but also for a U-turn in the city’s sizzling-hot property market amid a gloomy global economic outlook. Will the city and its property market ever be the same?

Industry watchers including Colliers International and Savills predict a further 10 percent fall in home prices over the next 12 months. Deutsche Bank AG estimates a 20 percent price correction. Less optimistic forecasts are for up to a 40 percent plunge in “the worst case scenario,” say analysts with Bank of America Corp’s Merrill Lynch.

On the luxury front, despite a minor upsurge in transactions earlier, realtors forecast a 13 to 15 percent fall in capital values of luxury properties. Ricky Poon, executive director of residential sales at Colliers International, explains developers will be less aggressive seeking higher prices and pitch prices of new flats close to those in the secondary market to lure buyers with a “wait-and-see” attitude.

A cloudy outlook is widely expected against the backdrop of global economic uncertainty and investor caution over China’s economic slowdown. There have been strings of warnings from Hong Kong’s risk-averse government. Financial secretary John Tsang repeatedly states the city’s property market is more “dangerous” than during the previous spike in 1997, at the onset of the Asian financial crisis.

“Hong Kong’s housing market currently sits between ‘ice’ and ‘fire’ — a combination of a chilly global economic woes and a bottom-low interest rate environment,” Tsang wrote earlier on his official blog. “We cannot blindly believe in the myth that home prices can only go up, not down.”

Despite that dire warning, home prices have proven resilient. The latest Centa-City Leading Index, a gauge of local housing prices by realtor Centaline, reached 104.01 in June, outpacing the historical high of 102.93 during the ’97 bubble. Rents, too, hit a new high, lifted by record flat prices. Average rentals at 100 private housing estates rose to $21.15 per square foot, outstripping the ’97 rate, according to Midland Realty.

The market experienced a slowdown in the second half of 2011, but confidence quickly resumed as seen in the 8 percent rebound in home prices this year. Over the last five years,

the city has seen the world’s second fastest-growing prices, up 94 percent through the end of last year, after Mainland China, according to Knight Frank. The surge has been fuelled by ultra-low mortgage rates, an influx of mainland buyers and insufficient land supply. Regular land sales came to a halt in 2004 to save the plummeting housing market until 2010.

This worries the government as the red-hot market could lead to a housing bubble. Small wonder many still haunted by painful memories of years of recovery from negative equity of their properties. The short story is that the city’s housing market has been on a rollercoaster since the handover — the Asian financial crisis, the SARS pandemic and the global financial tsunami added to land issues and interest rates.

The government has learnt to react promptly. In June, the Hong Kong Monetary Authority raised down payment requirement to 50 percent for flats costing more than $10 million. On top of that, “It is worth remembering the government still has a number of policies in play in curb speculation and head off an asset price bubble, including a special stamp duty and limits on bank lending,” as stated in a recent Savills report.

What’s more, the city’s de facto central bank looks determined to table further measures to rein in soaring prices, from accelerating land supply to tightening mortgage lending. “There is little incentive for the government to loosen [property curbs] as residential property is still far from being widely affordable,” Savills added.

And let’s not forget a bigger, stronger wave is yet to come. The city’s embattled new chief executive Leung Chun-ying has aggressive housing policies in mind, though he promised not to let home prices slump (hopefully). Not only did he pledge to bridge the widening wealth gap, but also to rein in home prices by increasing land supply and affordable housing. Six plots will be sold in three months from July this year. With redevelopment and railway projects, the government is boosting land supply enough to create 30,000 private housing units by the end of this fiscal year.

So will the downtrend end sooner rather than later? Property tycoons are less convinced of drastic actions on land supply and a crash in prices. Big daddy Li Ka-shing said earlier the market is healthier than it was 15 years ago as speculation is down. Contrary to most expectations, Cheung Kong’s executive director Justin Chiu reiterated his forecast of a 10 percent increase in property prices this year — while admitting growth is slowing from last year.

Balancing land supply will be the key in 2012. As Deutsche Bank analysts put it: “On July 1, we expect the Hong Kong property market to enter a new age, characterised by normalised supply dynamics.” Will this be a blessing or curse to the city’s housing market? It’s a cliché but accurate to say: hope for the best and prepare for the worst.