Party's over as developers forced to slash flat prices
Property developers seemed until recently to be blessed with the Midas touch, routinely turning bricks and mortar into gold.
But the fat profits that could be counted on even before a new residential project was completed are now under threat as demand for new homes dries up and prices are cut to entice buyers back into the market.
The change in sentiment has been swift. Only last month, new homes in Yuen Long and Tseung Kwan O were being released at prices up to double the prevailing transaction prices in the secondary market.
The souring of sentiment forced a reality check on developers. There is unlikely to be an early truce in the price war that has erupted as the battle for buyers intensifies, analysts say.
'Buyers are staying on the sidelines, and this trend will last for about six to 12 months given the very tight liquidity conditions,' Lee Wee Liat, regional property head at Samsung Securities, said.
Even mainlanders - who until now could be counted on to support demand, especially at the top end - are holding off on buying, he said.
To reverse falling sales, developers now have little choice but to cut prices and accept reduced profit margins. Lee predicted price falls of up to 20 per cent.
Latest evidence of the decline in demand came yesterday when Centaline Property Agency reported that the number of second-hand transactions in 10 of Hong Kong's biggest private developments fell 42 per cent from a week earlier.
This follows the offering by Sun Hung Kai Properties (SHKP) of a second batch of 50 flats in The Wings in Tseung Kwan O at an average of HK$8,750 per square foot - about 30 per cent lower than for the first batch.
The HK$12,698 per sq ft price of the first 50 flats was a record for the district and more than double the prices in the secondary market.
SHKP's change in pricing prompted a US pension fund to release the six remaining flats at Meridian Hill in Kowloon Tong for HK$14,136 per sq ft - 9 per cent lower than the previous asking prices. Buyers were also offered a waiver of stamp duty equivalent to 4.25 per cent of a flat's value, plus a 3 per cent cash rebate for purchase agreements completed earlier than scheduled.
Taking all the sweeteners into account, Meridian Hill flats were going for a discount of up to 16 per cent.
Sino Land, meanwhile, released the first batch of 50 flats at its joint-venture luxury development in Tai Po, Providence Bay, at an average price of HK$10,731 per sq ft, about 30 per cent lower than its earlier target of HK$15,000 to HK$20,000 per sq ft.
Pang Shiu-kee, managing director at S K Pang Surveyors, said it would become increasingly difficult to sustain high property prices against the background of a deteriorating global economic outlook.
'Compared with its rivals, SHKP has enjoyed the good fortune of pitching projects at big premiums. But in a market downturn, it is a fairytale to dream of achieving unbelievably high prices, especially in non-core locations,' he said.
Government measures to curb speculation in the property market - including a 15 per cent special stamp duty on the quick resale of a flat - have combined with rising home loan rates and tightening mortgage conditions to erode investor confidence and drive down sales.
Land Registry data shows the number of property deals has dropped for three straight months to 5,675 transactions last month, down 13.7 per cent from September's 6,579 deals and the lowest level since February 2009.
The Centa-City Leading Index, which tracks overall average transaction prices in Hong Kong, shows that the average home price has fallen 3 per cent since early June, when it surpassed the 1997 peak.
Investors, even cash-rich mainlanders, now appear to be taking a more cautious attitude towards paying jaw-dropping prices for new flats in the city.
SHKP said it sold 32 flats in its first release of homes at The Wings, in Tseung Kwan O, including a 2,560 sq ft penthouse, with a swimming pool, that fetched HK$51.2 million, or HK$20,000 per sq ft.
The developer said mainlanders accounted for 20 per cent of the buyers - down from an earlier estimate of 30 per cent.
Before the launch, the company said it had pre-registered 500 potential buyers. Analysts said the outcome of the release of the first batch of flats at The Wings indicated even well-off prospective buyers had started to baulk at the high prices.
'It depends on how you view the result. Is the glass half full or half empty?' mused one analyst.
'Yes, SHKP managed to find more than 30 buyers willing to pay such high prices for The Wings. But what prevented the remaining 470 pre-registered buyers from signing sale and purchase agreements?'
Mortgage financier Leland Sun, managing director of Pan Asian Mortgage, said the lowered asking prices would reduce the price gap between the primary and secondary markets.
'Obviously, these cuts will have a spillover effect into the secondary market. We expect property prices to continue their downward trajectory into 2012, with the market bottoming out in 2013,' Sun said.
Drop in the number of residential property transactions last month from September, the third monthly decline in a row