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Developers like Cheung Kong Property are finding more buyers are pulling out of deals over fears of further price falls. Photo: Jonathan Wong

New | Hong Kong homebuyers cancel deals amid fears of price slump sparked by US interest rate rise - and one even forfeits HK$2.55m deposit

Many Hong Kong property buyers are backing out of purchase deals while sellers are offering deep discounts in anticipation of a drop in prices once the US raises interest rates.

Market experts said they expect more buyers to walk away from deals made earlier if market sentiment deteriorates.

"Developers that require purchasers to put down a small initial down payment will be hit the hardest," said Alvin Cheung Chi-wai, an associate director at Prudential Brokerage, adding that many buyers would rather cut losses buy forfeiting their deposits if they are convinced a slump is on the way.

The US Federal Reserve will decide on the timing and the quantum of an interest rate increase by Thursday.

There have been 30 instances of purchase cancellations so far this month, of which 11 were at Kowloon Development's Upper East project in Hung Hom. There were five such cases at Cheung Kong Property Holdings' Beaumont in Tseung Kwan O and four at The Aspen Crest project in Diamond Hill developed by Far East Consortium International.

The biggest such case was of a buyer who had signed an agreement for two flats at Upper East for a total of HK$11.8 million but walked away after forfeiting HK$2.55 million in initial down payment deposit.

Kowloon Development recorded the largest number of defaults as it requires potential buyers to come up with down payments of just 5 per cent. It sold about 340 units - 40 per cent of them snapped up by investors - this month at the Upper East project that comprises 1,008 units with sizes ranging from 194 sq ft to 375 sq ft.

The developer not only provides buyers second mortgage loans of up to 35 per cent but also a 14 per cent discount on the flats, which are priced upwards of HK$3 million. Coupled with a 60 per cent bank mortgage, the additional loan leaves buyers to put down just 5 per cent of the price, or HK$150,000 for the cheapest flat.

Kowloon Development will offer a second batch, of 242 units, for sale today.

Meanwhile, home owners in the luxury and mass secondary residential market have started to cut asking prices to attract buyers. A 806 sq ft unit at Pacific Palisades at North Point Hill sold for HK$14.5 million, about HK$1 million less than the original asking price.

"This is the first deal in North Point Hill so far this month," said Terry Chan, associate director at Centaline Property Agency's luxury home unit, Stately Home.

In Tin Shui Wai, a 546 sq ft unit at Kingswood Villas - Hong Kong's most active housing estate in terms of turnover - changed hands for HK$3.92 million, the first one to be sold for below HK$4 million in the past couple of years there.

Alfred Lau, an analyst at Bocom International, said he expects home owners to price their properties more realistically if the market is hit by more negative news.

"More default cases indicate growing bearish sentiment about market outlook," he said.

On Tuesday agents reported that transactions in the city's secondary market had dived to a 20 year low.

This article appeared in the South China Morning Post print edition as: More buyers forfeit deposits over price slump fears
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