Hong Kong developers exercise caution in pricing new projects after housing transactions fall for second month amid rising interest rates

Land Registry says the total value of housing transactions dropped by 25 per cent in July, while the total number of deals declined by 23.9 per cent
The drop reflects home-buying sentiment, which has been hurt by US interest rates rising fast and sharply, Centaline executive says

Hong Kong property

Sandy LiandDavid Ren

Published: 7:30pm, 2 Aug 2022

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Property developers in Hong Kong continue to price new projects competitively after the total value of housing transactions declined by a quarter in July amid an uptrend in the city’s interest-rate cycle.

Sun Hung Kai Properties (SHKP), Hong Kong’s largest developer by sales, for instance, on Tuesday released the latest batch of 168 units at its Novo Land project in Tuen Mun that goes on sale this Saturday at an average price of HK$14,392 (US$1,833) per square foot – almost the same as a previous batch released over the weekend at HK$14,385 per square foot. The developer sold all 336 units during the last round.

Also on Tuesday, the city’s Land Registry revealed that the total value of transactions involving residential units dropped by 25 per cent to HK$33.9 billion in July, while the total number of deals declined by 23.9 per cent to 3,671. The value and volume of flat sales have now fallen for two consecutive months.

“Both the value and number of deals declined to their lowest level since March,” said Wong Leung-sing, senior associate director of research at Centaline Property Agency. In March this year, the total value of residential transactions stood at HK$26.9 billion, while the total number of deals was 2,869. “The drop reflects home-buying sentiment, which has been hurt by US interest rates rising fast and sharply,” he added.

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Hong Kong homeowners have been feeling the pain of higher borrowing costs as the Federal Reserve has raised rates four times since March this year.

Mortgage payments linked to the Hong Kong interbank offered rate (Hibor) have risen since March – the one-month Hibor rose to 1.33 per cent last Thursday, its highest level in the past two years, after the Fed increased interest rates by 75 basis points for a second straight month the same day. The effective mortgage rate – 1.3 percentage points above Hibor – rose from 1.43 per cent in January to about 2.5 per cent on Tuesday.

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Monthly mortgage instalments have increased 15 per cent from January, according to Eric Tso, chief vice-president at mReferral Mortgage Brokerage Services. For instance, the monthly instalment for a 28-year HK$5 million mortgage loan has increased to HK$27,706 currently, 15 per cent more than HK$18,067 in January.

Last week, Henderson Land Development released the first batch of 123 units at One Innovale-Archway in Fanling starting at HK$2.96 million after factoring in a 7 per cent discount, or HK$13,106 per square foot. Henderson said the project has been launched at an average price of HK$14,168 per square foot, or about 5 to 10 per cent lower than nearby projects.

The developer said on Tuesday it would offer 318 units at One Innovale-Archway for sale this Saturday. This brings the number of units on sale to 666 – SHKP has been releasing pricing since last week and will sell a total of 348 units this weekend.

“The housing market will normally feel the impact of an interest-rate hike six months later,” said Albert Wong, honorary chairman at AA Horses Mortgage Brokerage Services. Hong Kong banks will increase their prime rates as early as the next several weeks, if the US keeps on raising rates aggressively, he said.

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Hong Kong interest rates started rising from the second quarter, which meant their negative impact on home prices would be felt in the last quarter of this year, said Wong, who also forecast home prices to drop by 20 per cent this year and next.

With the market at the start of a downward cycle, home prices will drop by 5 to 10 per cent this year, Joseph Tsang, chairman at JLL Hong Kong, said last week. “I won’t be surprised to see if the prices come down by 20 or 30 per cent,” he told the 2022 SCMP China Conference last Thursday.

Ricacorp Properties said property prices in the second half of 2022 would be determined by developments related to the coronavirus pandemic.

“If it can be kept under control and the border is reopened in the third or fourth quarter, this could save the market,” said Derek Chan, Ricacorp’s head of research.

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