Hong Kong Home Discounts Rise With ’14 Drop Forecast: Mortgages

Jan 02, 2014 11:59 pm ET

Jan. 3 (Bloomberg) -- Hong Kong dwellings from one-bedroom apartments to 5,000 square-foot (465 square-meter) houses are on offer at discounts of as much as 20 percent as developers brace for a plunge in prices, which have more than doubled since 2009.

Builders, including the city’s two biggest, Sun Hung Kai Properties Ltd. and Cheung Kong Holdings Ltd., offered about 1,000 housing units in December, after selling 1,114, the most since March, in November, according to estimates from Centaline Property Agency Ltd. New home sales in 2014 will almost double to 15,000 from an estimated 8,500 in 2013, the lowest since data were first collected in 1996, said Wong Leung-sing, an associate research director at the city’s biggest closely held realtor.

“Earlier this year, developers wanted to hold on to the units as they expected they could sell them for more in the future,” said Patrick Chau, director of residential development and investment at property broker Savills Plc in Hong Kong. “Obviously, they don’t see that’ll be the case anymore.”

Analysts at Barclays Plc, UBS AG and Jefferies Group LLC are predicting that prices will drop by as much as 30 percent by 2016 amid an increase in the supply of properties and after the government introduced measures to curb price growth such as higher stamp duties and down payment requirements. Li Ka-shing, who controls Cheung Kong, said he is slowing land acquisitions because values are too high, and the central bank has repeatedly warned the property market is still in danger of overheating.

Sales Slowed

The Hang Seng Properties Index, which tracks the city’s nine biggest builders, fell 9.2 percent in 2013, compared with a 2.9 percent increase in the benchmark Hang Seng Index. The property index fell 2.3 percent at the noon trading break in Hong Kong today.

Buyers have backed away since the government imposed its toughest price curbs yet in February. About 46,000 homes changed hands in the city in the first 11 months of 2013, down from 78,000 deals over the same period a year earlier, according to Land Registry data.

That hasn’t dented prices. They rose 2.8 percent in 2013 even as policy makers in February doubled stamp duties on all property transactions above HK$2 million ($258,000) to as much as 8.5 percent. In October 2012, it slapped a 15 percent extra tax on home purchases by all non-Hong Kong residents.

Given the penalties, developers are now offering sweeteners to entice buyers. At The Avenue, an apartment complex co- developed by Sino Land Co., Hopewell Holdings Ltd. and the government about 1.5 kilometers (0.93 miles) from the city’s financial district, apartments were sold at an average of HK$20,000 a square foot after the discounts were applied, said Joseph Tsang, Hong Kong-based managing director at broker Jones Lang LaSalle Inc.

Offering Discounts

The developers have sold all of the more than 900 units they put on the market at the development in Wan Chai, a residential and commercial area, since sales began in November, according to transaction records posted on the project’s website.

“Before the curbs, this project could’ve easily sold for HK$25,000 per square foot,” said Tsang of Chicago-based Jones Lang LaSalle. “Many people would be attracted to buy because they think it’s a good price, but the market is a long way from getting heated again.”

Builders New World Development Ltd. and Wheelock & Co. sold 576 units at The Austin, a luxury apartment project in the Kowloon West district between October and November at a discount of as much as 20.5 percent, according to its website. Sun Hung Kai, the city’s second-biggest developer by market value, sold about 300 units at The Cullinan, a luxury high-rise in the same area, with discounts of about 20 percent, according to the website.

Unusual Development

“This is quite unusual,” said Centaline’s Wong. “Normally developers would have their sales plan mapped out quite evenly over the course of the year, but the curbs in February really threw them off. So now they’re trying to accelerate sales to make up numbers.”

Calls to developers about sales records were referred to the projects’ websites. The Hong Kong government requires developers to post transaction records of new units on the Internet within 24 hours of them being sold.

Record-low mortgage rates, a shortage of new supply and an influx of mainland Chinese buyers have propelled prices above levels reached in 1997, which marked the start of the city’s last major property crash. The former British colony is the most expensive city to buy a home, according to a Savills survey published in September that included New York, London and Tokyo.

The affordability ratio, which measures the proportion a homebuyer has to pay monthly on a mortgage relative to income, stands at just over 60 percent, close to a 14-year high, according to calculations by London-based property broker Knight Frank LLP.

Asset Bubble

Hong Kong Chief Executive Leung Chun-ying and other government officials have repeatedly warned of an asset bubble and said the government won’t withdraw the measures until there is a steady supply of new housing. Norman Chan, the head of the Hong Kong Monetary Authority, said Nov. 15 the city’s property market is still in danger of overheating.

“The few months after the last measures have been a period of adjustment for both buyers and sellers,” said Ricky Poon, Hong Kong-based director of residential sales at Colliers International. “Developers now realize they can’t be as aggressive as before and have adjusted accordingly.”

Hong Kong home prices will fall at least 30 percent by the end of 2015 as income growth stalls and supply increases, Barclays’s Hong Kong-based analysts Paul Louie and Zita Qin wrote in an Oct. 28 report, following predictions of a 25 percent decline by UBS’s Eva Lee. Venant Chiang, an analyst at Jefferies, said in a Dec. 3 report he expects prices to fall 20 percent in 2014.

Developers are also rushing sales of luxury properties, which have been hit hardest by the government curbs because many buyers were wealthy mainland Chinese who now face the extra 15 percent tax, while tighter mortgage rules imposed by the central bank raised down-payment requirements for more expensive homes.

Victoria Peak

Prices of luxury homes, or those valued at more than HK$10 million, have fallen about 6 percent this year, while those selling for less have been little changed, according to property broker Cushman & Wakefield Inc.

Hutchison Whampoa Ltd., a unit of Cheung Kong, the city’s biggest developer, has sold three houses with areas of over 5,700 square feet each in the upmarket Victoria Peak area since November for a combined HK$1.8 billion, according to its website. The other four houses in the project have also been put up for sale.

“The luxury market has been quiet for a while, but the developers see what’s been going on with sales in the mass market lately so they want to test the water,” said Thomas Lam, Hong Kong-based director of research at Knight Frank.

--Editors: Andreea Papuc, Linus Chua, Pierre Paulden