Foreclosed homes sell swiftly as prices rise

PUBLISHED : Wednesday, 05 November, 2003, 12:00am
UPDATED : Wednesday, 05 November, 2003, 12:00am

Home buyers are snapping up units repossessed by mortgage lenders

Sales of foreclosed homes soared across the city as the housing market bounced back over the past two months.

With home prices rising steadily since late August, prospective buyers are looking to foreclosure sales as a way to land homes at below-market prices.

Sales of foreclosed homes soared to about 600 both last month and in September, almost double the average of 300 to 350 deals a month recorded over the past two years, according to property experts.

'Generally speaking, buying a foreclosure will usually get you a discount to market price,' said Desmond Poon Chi-ming, associate director of Chartersince Surveyors, which auctions foreclosed properties.

'As lending banks hope to sell the repossessed property to cover the mortgage loan owed by the borrower, they will usually accept a sale price at a certain discount to the market level,' Mr Poon said.

'That makes foreclosure sales attractive.'

A foreclosure sale involves selling a property after the owner has failed to make mortgage payments or defaults on obligations secured by a mortgage.

With home prices falling more than 60 per cent since the market crash in 1998, the number of foreclosed properties has soared. It is estimated that there are more than 4,000 unsold foreclosed properties on the market, 75 per cent of which are residential.

In Hong Kong, foreclosed homes can be sold through private negotiation, public tender or public auction.

In a private deal, estate agents put the property on the market on behalf of lending banks.

If a property fails to find a buyer after several months, it will be placed with a bank for sale by tender or auction.

With the number of transactions soaring, prices of foreclosed properties rose 5 per cent to 10 per cent in the past two months, said Victor Lai Kin-fai, managing director of Centaline Surveyors, a unit of Centaline Property Agency.

The rise was also prompted by the strengthening housing market.

Banks usually price foreclosed property on the basis of a monthly valuation by appointed surveyors.

When home prices started turning the corner at the end of August, banks did not react as quickly as landlords of secondary flats in raising prices, Mr Lai said.

As a result, anyone looking for repossessed properties easily found bargains, he said.

However, banks have been gradually raising prices.

For example, a foreclosed townhouse of 1,896 square feet with a 431 sqft garden in Marina Cove, Sai Kung, was sold for $5.2 million. Now a similar property in the same development is going for $5.5 million.

Ronald Cheung, director of Midland Realty's surveying division, said that prices of foreclosed apartments a few months ago were 5 per cent to 10 per cent below market values.

But the range had narrowed to 1 per cent to 2 per cent on some popular housing estates after the recent buying spree.

In large housing estates such as Whampoa Gardens in Hunghom and Taikoo Shing near Quarry Bay, transacted prices for foreclosed properties were usually close to prices for secondary units.

The discount could be bigger for units in single buildings in urban districts such as Tai Kok Tsui or Mongkok, Mr Cheung said.

'You can ask for a bigger discount of up to 20 to 30 per cent to market level for aged properties or village houses in remote areas as demand for these assets is relatively low,' he said.

'Buying foreclosed properties may not be a cheaper path to home ownership. It all depends on demand and supply.'

Quality units, which seldom appear on the secondary market, would sell for more than their market value, he said.

However, Mr Cheung said foreclosed properties still remained an attractive proposition.

'In a rising housing market, it's common to see landlords of second-hand flats rejecting your offer even though you agreed to pay the price they are asking for.

'But you can be pretty sure of getting a foreclosure sale property as long as you agree to meet the bank's asking price,' he said.

Realtors expect the number of foreclosed transactions to decline this month as demand drops in the face of rising prices.

Supply might fall too because, rather than sell their properties, financially troubled flat owners would ask creditor banks to restructure their loan portfolios, they said.