Flat defaults point to mainland malaise
Sandy Li, Thomas Chan and Ng Kang-chung
Mainlanders' love affair with Hong Kong property is cooling, with some either defaulting on home purchases or being forced to sell at a loss as mainland credit tightening and growing bearishness about the sector start to bite.
Property agents believe those who have not yet completed their purchase agreements on flats may be tempted to forfeit their down payments and cancel the deals out of fears the market may be due for a correction after repeated government warnings of a possible bubble.
Chinachem sales manager Ng Shung-mo said three mainlanders who had bought apartments at its 88-flat Residence 228 in Sham Shui Po had walked away from the deal, forfeiting their 10 per cent initial down payment. A local buyer had also forfeited the deposit.
'We weren't able to contact these mainland buyers, even though the completion date was extended from early this year to this month. So we treated them as defaults,' he said.
The three mainland buyers had bought the flats last year for a total of HK$12.2 million, he said. This meant they had forfeited HK$1.36 million.
In the secondary market, a mainland businessman was forced to sell his luxury flats at The Arch, at Kowloon station, where many of the flats have been bought by mainlanders, at a loss of close to HK$2 million this week to raise cash for his business, said a property agent who asked not to be named.
Another mainland buyer reportedly lost HK$4 million from the sale of his luxury flat at The Cullinan, also at Kowloon station.
'We've been seeing fewer mainland buyers over the past six months because of the intensifying credit crunch in China,' said Dickson Lui, assistant sales director from Ricacorp Properties.
But Sammy Po, a director of Midland Realty, played down the defaults. 'We're used to seeing some buyers choosing to default on their deposits when market sentiment changes dramatically,' he said. In the first quarter, mainlanders' spending on new homes fell 15.5 per cent to HK$12.5 billion, from HK$14.8 billion in the final quarter of last year, a Midland Realty survey showed. Their spending in the secondary market was HK$4.6 billion, down 16.4 per cent.
Mainlanders accounted for 36.8 per cent of new-home sales in the quarter, down from 37.9 per cent per cent, and 8.4 per cent in the secondary market, down from 15.6 per cent.
'If the trend continues it could drag prices lower in the short term,' Po said.
In the first quarter, property prices were 10 per cent above their peak in 1997, the government said last month, sparking fears of an asset bubble. Mortgage payments take about 46 per cent of the average flat owner's household income. An increase of three percentage points would take that figure to 60 per cent.
Meanwhile, executive councillor Professor Anthony Cheung Bing-leung, widely tipped to be the next housing minister, ruled out making 'big moves' in the private property market. He also appeared to backtrack on banning non-locals from buying flats in designated developments as a means to help locals buy affordable homes, saying more studies were needed.
'The incoming government should review the long-term housing policy and seriously think about the issues of land planning,' said Cheung. 'Based on the current situation of the property market, we should not intervene too much.'