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SCMP Reporter

A crisis is approaching for thousands of Hong Kong flat buyers caught by the property downturn and due soon to complete purchases made at the height of the property market last year.

 Reduced valuations on their properties since the downturn mean less bank mortgage finance is available and could result in a gap of up to 30 per cent between purchase prices and financing.

 Developers, with the lone exception of Cheung Kong (Holdings), have rejected requests from some buyers to postpone sales completions - due in May or early June.

 There are nearly 10 projects comprising about 5,750 flats sold prior to the downturn in the property market which are due for completion.

 Buyers who opted for the staged-payment plan and put down about 30 per cent, must pay the remainder upon completion.

 Unfortunately, following the regional financial crisis, property prices dropped 30-40 per cent.

 As a result, Hong Kong banks have reduced their valuations on the properties, which could leave some buyers 20-30 per cent short on financing to make their final payment.

 Agents are worried that some will default due to the gap between purchase prices and what banks are now prepared to lend against the properties.

 Agents said that if scores of buyers defaulted, disturbing signals would be sent to the property market - perhaps sparking another downturn in prices.

 Some said about 10-15 per cent of staged-payment buyers in some developments might default.

 However, developers said second-mortgage provisions they offered should enable most buyers to come up with the financing needed to complete their purchases.

 'We expect once we receive our consent to assign in June from the Government that people will receive their letter to complete on the deal shortly thereafter,' said a spokesman for HKR International, which along with New World Development, sold the third phase of Discovery Park in Tsuen Wan at the market's peak last year.

 However, Cheung Kong has agreed to extend the completion date for its Laguna Verde project in Hunghom.

 A Cheung Kong spokesman said it was extending the completion date to July - not because any buyers might be in financial difficulty - but because construction had been delayed by last year's heavy rains.

 Agents said the completion date for sales could be postponed to September.

 Some units in the development which sold last year for more than $10,000 per square foot were now worth about $8,000 per sq ft, agents said.

 Prices in the secondary market at nearby Whampoa Gardens were even lower.

 However, they said most buyers were likely to complete deals on their Laguna Verde units and sell at a loss rather than forfeit the 30 per cent deposit, agents said.

 The Cheung Kong spokesman said only about 20 per cent of the 700 buyers bought their units through a staged-payment plan and only a small percentage of those had asked for financial help.

 'This place is a high-class residential development. Most people buying here are merchants or business people,' the spokesman said.

 Agents said they were concerned about another Cheung Kong project in Yuen Long called Maywood Court, the last phase of Kingswood Villas.

 Centaline Property Agency sales manager at the project, Perry Fong, said it was possible some buyers would default.

 'Speculation was quite hot in the market early last year when the property was sold,' Mr Fong said.

 Units in the development sold for as much as $5,000 per sq ft, while secondary market property in the neighbourhood now was selling for as little as $3,000 per sq ft, agents said.

 Agents also said they would not be surprised by defaults on Tsing Yi Island at the first phase of Villa Esplanada, a joint venture between Cheung Kong, Sun Hung Kai Properties (SHKP) and China Resources Enterprises.

 They said about one third of about 700 buyers bought through the staged-payment plan.

 Some had paid as much as $9,700 per sq ft for better-located units, but since the sale last summer, prices had dropped by 30 per cent. Some agents said buyers would test the secondary market before deciding to complete on their deals.

 'If buyers are asked to take more than a 30 per cent cut in price in the secondary market, chances are they will forfeit,' one said.

 Prices of nearby properties in the secondary market were as low as $4,000 per sq ft.

 At the third phase of Discovery Park in Tsuen Wan, an HKR spokesman said just over half of about 1,120 flats which had been sold were bought by staged payment.

 However, while it was difficult to say, he did not expect many staged-payment buyers to default.

 The developer had provided a second mortgage covering the balance of the purchase price not covered by the bank.

 However, some neighbourhood agents said as many as 15 per cent of phase three buyers who purchased through the staged-payment plan might default.

 In Tuen Mun, Hang Lung Development has begun sending letters of completion to the 20 per cent of buyers in its Noble Place development who opted for staged payment.

 Property agents said less than 10 per cent of those buyers would forfeit, even though prices had dropped 30 per cent since they bought.

 In Yuen Long, agents said they saw few problems with Paliburg Holdings' Villa Art Deco.

 'The developer is supplying a second mortgage as high as 20 per cent and in some cases buyers don't have to start paying it back for four years,' one agent said.

 Agents also said they expected few problems in SHKP's Botania Villa, despite a 30 per cent drop in prices.

 The position was the same at Sino Land's Scenic Garden, also in Yuen Long, where the developer has begun sending out completion notices.

 Centaline said about 40 per cent of buyers used staged payment and would get a second mortgage from the developer.

 A Sino Land spokesman said he expected few problems with its Grand Palisades development in Tai Po.



Financial crunch comes for home buyers