Surge of new luxury flats to test strength of demand

PUBLISHED : Wednesday, 31 March, 2010, 12:00am
UPDATED : Wednesday, 31 March, 2010, 12:00am

A flood of new luxury homes is expected to hit the market next month and industry watchers are divided on how potential buyers will respond.

Interviews with people who are looking for a new home reflect the range of views held by analysts and agents.

Self-employed engineer Jason Wong, for one, plans to buy a flat at Festival City, a development by Cheung Kong (Holdings). 'We have two children. We need a bigger living space, and Tai Wai has better transport connections,' he said.

But Jeff Pao, who works in a news agency, prefers to wait. 'I don't want to buy at the market peak. Prices may drop once interest rates increase in the middle of this year. I will buy once prices drop 10 per cent,' he said.

Pao sold his flat at Ocean Shores in Tseung Kwan O in June last year and is now renting a flat in the same estate.

Buyers' concern about whether prices have peaked will lead to a slow take-up of new flats, some analysts and agents say. But others remain bullish, pointing to the strong demand.

The first phase of the 4,304-unit Festival City was launched for sale last Friday, getting to the market just ahead of the release by a consortium led by Sun Hung Kai Properties of Larvotto, a luxury project in Ap Lei Chau, over the Easter holiday.

A consortium led by Sino Land is also expected to launch the Hermitage in West Kowloon for sale next month.

All three projects target the higher-income groups.

Although Festival City is located in the non-core area of the New Territories, the minimum price of the first batch of 20 flats released last week was HK$8.95 million.

The 715-unit Larvotto project is pitched at an average of HK$25,000 per square foot, with the minimum price of a flat at about HK$60 million.

Analysts expect prices of the Hermitage, which will offer 852 flats, to reach HK$13,000 per square foot.

These three luxury residential projects are expected to ease demand significantly and consume a good portion of the market's buying power, analysts say, stirring concerns about the strength of support for new releases due later this year.

Property seekers are becoming wary of rising home prices, said Michael Wu, a director at Fitch Ratings.

He points to Festival City's slowing sales. Fewer than 400 flats at a cost of between HK$8,000 and HK$11,000 per square foot were sold in the first three days of sale. Of this number, 300 were sold on the first day. This compares with the developer's weekend sales forecast of 1,360 flats.

'If the response at Larvotto and the Hermitage is similar, we may conclude that the market is seeing a turnaround,' Wu said, adding that the two projects' pricing would be crucial.

Any slowdown will affect how developers of upcoming projects set their prices, he said.

Ricacorp Properties managing director Willy Liu Wai-keung also thinks sales may slow after the current wave of launches.

'They are the biggest new projects to be launched this year. They will appeal to demand on Hong Kong Island, Kowloon and New Territories and transactions will slow down for a while until buying power recovers,' he said.

There are still some eager buyers. Wong, the 38-year-old owner of an engineering company who is mulling a move to Festival City, has lived in a 600 sq ft flat at City One Sha Tin for more than eight years. He is confident about the timing of the buy.

'Prices of similar-sized flats at my estate have already reached HK$6,000 per square foot. Apartments in the two-year-old Palazzo at Fo Tan MTR station already cost more than HK$10,000 per square foot,' he said.

Yvonne Wong, a homeowner in Baguio Villa in Pok Fu Lam, waited in vain for a correction in property prices for six months and said she now plans to buy a 1,300 sq ft flat for more than HK$10 million. 'Prices keep going up and we are also facing a depreciation in our currency. New projects offer a higher upside potential in prices, compared with old housing estates,' she said.

Baldwin Ko, an executive director of Agnes b Delices, is watching the market before he jumps in. He is leasing a 1,600 sq ft flat at Bel-Air Residence in Cyberport for HK$45,000 a month and has seen new rental agreements for similar flats reach HK$60,000 a month.

But prices are too high to buy now, he said. 'I will enter the market if there's a 20 to 30 per cent price correction in early 2011 as my lease will expire by then,' he said.

Buyers who defer their plans because of concerns over rising rates could be mistaken, said Eric Yuen Chi-fung, the head of research at Guoco Capital, who expects interest rates to remain at current levels for at least the remainder of the year.

'Hong Kong did not follow the last two rate cuts in the United States and I don't think we follow the first two increases in rates when the cycle turns,' he said.

Yuen expects a strong take-up of new releases next month, followed by a decline in sales volume.

'But the underlying demand for housing is strong. This is shown by the fact that more than 20,000 people applied to buy Sandwich Class Housing Loan Scheme flats recently,' he said.

The 838 flats on offer under the scheme were oversubscribed by 25 times by the time applications closed on April 22, according to the Hong Kong Housing Society.

Yuen expects property prices to rise 10 to 15 per cent this year.

This optimistic view carries some risks, Polytechnic University professor Eddie Hui Chi-man said. 'If rates were to rise fast, this will dampen the affordability of flats for buyers. But if there is no sharp increase, there could be a mild increase in prices.'

For sale

Three luxury residential projects to be launched within a month of one another target the higher-income groups

Combined, they will make available this number of flats: 5,871