Chinese and Hong Kong property prices are set to rise through the year to 2010, according to a report on the real estate sector by UBS.

Hong Kong homes and office rates will increase by 32 per cent and 29 per cent, respectively, from June 2009 to December next year, while home prices in China will likely be up 20 per cent, the Swiss bank said.

The rises will take place because of a growing global money supply, ample China liquidity, and poor returns on bank deposits which will encourage property investment instead.

Like many other parts of the world, property prices in China and Hong Kong have been under pressure as the financial turmoil has taken its toll. In the first quarter of this year, China’s house prices fell by an average of 3.9 per cent in the first quarter of this year from the same quarter a year ago, according to Knight Frank, the international property firm. Hong Kong fell by almost 16 per cent over the same period.

Easing liquidity pressures had boosted developers' abilities to hold properties for a longer period in return for higher prices. The improving appetite for investment has also witnessed a drop in inventories, as growing demand is not met by the rise in construction, said Eric Wong, UBS Investment Bank Asia real estate research head.

The Chinese property market had hit rock bottom at the onset of the global crisis. However, as investors from around the world are looking for alternative areas to place their money, China looks attractive, encouraging market observers to take a bullish view on the country’s real estate outlook.

Mr Wong added: “UBS has raised its home-price forecast from 5 per cent for both 2009 and 2010 to 20 per cent for 2009-2010 combined. We don’t consider our 20 per cent price increase as aggressive; from the end of 2008, China’s overall residential prices have risen by 8.5 per cent and over 10 per cent in many large cities.”