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Hong Kong Property

Hong Kong’s repo man is back at work in the property sector, as harsh economy and falling house prices fuel surge in foreclosures

A foreclosed luxury property at 39 Conduit Road sold at auction Thursday for 20 per cent below its purchase price less than two years ago

PUBLISHED : Thursday, 28 April, 2016, 9:36pm
UPDATED : Friday, 29 April, 2016, 12:05pm

Property foreclosures in Hong Kong continue to mount as home prices deflate, and analysts warn there could be more borrowers failing to pay mortgages on time as the downtrend continues.

On Thursday, one high-end luxury apartment sold in a foreclosure auction 20 per cent below the price paid by a mainland company to acquire the property less than two years earlier.

The 2,476 square foot foreclosed unit at Unit B on the 39th floor at 39 Conduit Road sold for HK$108.3 million, 19.7 per cent or HK$26.6 million below its HK$134.9 million purchase paid in June 2014. The transaction price converts to an average HK$40,000 per square feet.

“Foreclosed properties have doubled in Hong Kong from a year ago,” said Henry Choi, a director at Century 21 Surveyor and the sales agent of the unit at 39 Conduit Road.

Choi said there are about 130 foreclosed properties available for auction now, compared to 60 in the same period last year.

The unit at 39 Conduit Road, according to Land Registry, was previously owned by United Sunrise, a mainland company which listed as its directors Yin Cong and Chan Wai Yung.

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The owners made the first two monthly mortgage payments but fell into arrears on the third month after purchase.

The deal was eye catching as 39 Conduit Road is one of the most expensive luxury properties in Hong Kong. A unit was sold in 2015 for more than HK$100,000 per sq ft, making it the most expensive apartment sale in Asia at the time.

“While most property value is around HK$ 20 million to 30 million, over HK$100 million is rare,” Choi said.

The declining property market in Hong Kong since last September has weighed heavily of leveraged buyers.

Some aggressive property investors have remortgaged their properties several times but find themselves hard pressed to make payments as home prices deflate.

Eva Lee, a property analyst at UBS, said the slowing economy in Hong Kong and China was a factor in the property market cooling, bringing on a wave of foreclosures.

“The retailing industry is very weak and the Hong Kong dollar has been devalued against the euro and other Asian currencies, the competitiveness of Hong Kong is declining,” Lee said.

Hong Kong’s housing prices have slumped about 11 per cent since peaking in September, and are expected to fall a further 19 per cent through to the second quarter of 2017, according to Nomura estimates.

“For sure there would see more foreclosed properties, unless the market turns around which is not likely in short term,” Lee said.

UBS expects Hong Kong home prices will fall to their lowest level in the current correction in 2017, before rebounding as the economy stabilises.

Century 21’s Choi said anticipation of the yuan’s devaluation and a US interest rate hike have also weighed on the property market.

But he said the situation is not too bad as the demand for foreclosed properties, in particular luxury houses, is still strong. The unit at 39 Conduit Road attracted six bidders, with Choi describing the final sale price as “reasonable”.

“The market is still much better than 1997 during the financial crisis, when there were thousands of foreclosed properties,” Choi said.