People who bought property at Chelsea Court through Sun Hung Kai now find they paid up to 30pc more than their new neighbours Homeowners at Chelsea Court in Tsuen Wan are in a quandary - and most are in a fury. Six months ago they were drawn to Sun Hung Kai Properties' attractive preferential mortgage package and happily signed on the dotted line. But now, to their consternation, they find that flats next door have had their prices slashed by up to 30 per cent. These buyers are now sitting in overpriced homes, wondering what to do next. Meanwhile, the situation is rather different over at uncompleted projects, where buyers who have made down payments on units still under construction have the option of walking out on their deposits. Most end-users, those who have bought homes to live in, will want to complete the purchase transactions. But the investor, who usually has a fair amount of stock in hand, might be happy to dump the unit and forget the down payment. 'Developers are aggressively cutting prices on unsold inventory in new projects, and some buyers are considering ditching their down payments on uncompleted flats,' according to Shih Wing-ching, chairman of Centaline Holdings, which controls Centaline Property Agency, one of the two biggest property agents in the city. He said investors with property bought under shell companies on staggered payment schemes were most likely to default. Under the package deal, buyers make a down payment of 15 to 25 per cent in installments and pay the balance only when the apartment is completed. In the case of SHKP's 1,624-unit Chelsea Court, about 20 of the buyers who purchased their flats before the 30 per cent price cut have not completed the transactions and were still negotiating with the developer, according to Eric Chow Kwok-yin, an executive director at Sun Hung Kai Real Estate Agency, the property sales arm of SHKP. Mr Chow promised that the company would help these buyers, but declined to say if they would get the same kind of price discount. Property agents said a number of residential projects were scheduled to be completed over the next two months, and market observers were waiting to see how buyers reacted. Projects just about ready for delivery include New World Development's 1,472-unit Grandiose project in Tseung Kwan O; Sun Hung Kai Properties' 764-unit Noble Hill in Sheung Shui, and The Arch, a 1,054-unit project at Kowloon station, also developed by SHKP. 'More than 70 buyers of Noble Hill flats have still not completed their transactions. They are wondering whether prices will be slashed the way they were in Tsuen Wan,' said a property agent at Centaline Property. 'But so far I haven't heard any rumours of defaulting buyers.' Last year at The Arch, a 5,353 sqft penthouse was sold for a record $31,000 per sqft. About 95 per cent of units at The Arch have been bought, largely by speculators and investors. Eddie Hui, a professor at Polytechnic University's department of building and real estate, said buyers generally did not choose to default but would consider doing so if they saw unsold flats in their developments going at bargain rates. 'Developers will cut prices only when the majority of buyers have completed their purchase transactions,' he said. Developers usually come up with an assortment of preferential financing packages to help buyers to complete the deals, as with Chelsea Court. Last November SHKP offered a special financial programme to 400 Chelsea Court buyers who opted for staged payments. Under the scheme, interest was waived and Chelsea Court buyers could defer mortgage payments for one year. But when the transactions of most of the flats were completed, SHKP cut the price of the remaining unsold 300 flats. Hendrick Leung Lee-chung, Centaline Finance's director and general manager, said investors usually preferred to unload their stocks at a loss rather than risk having people defaulting on payments. Victor Lui Ting, also an executive director with Sun Hung Kai Real Estate Agency, did not think the recent price cuts would set off a spate of buyer defaulting. 'Most buyers at The Arch, for instance, have paid 25 per cent to 30 per cent in down payment. Do you think they will walk away without completing transactions?' he asked. Agents said that 20 units at The Arch were sold in the secondary market in the past month, about 50 per cent of them at a loss. Mr Leung of Centaline Finance said that defaulting buyers risked being sued by the developers and were accountable if they had bought apartments under their own names. If a transaction is carried out by a shell company, or under a provisional sale and purchase agreement with developers, the buyer loses the deposit only if he or she defaults, according to Angela Lee, a partner at law firm Baker & McKenzie. Defaults have become a common occurrence in the primary market, ever since the market collapse nine years ago when property values dropped by more than 50 per cent from their peak in 1997. Buyers who had signed pre-sale agreements on unfinished flats at peak prices chose to, or were compelled, to back out of their contracts. In 1998, Cheung Kong (Holdings) took the lead and sued defaulters at its Maywood Court project in Tin Shui Wai for damages. 'At the time, flat owners could not even find buyers in the secondary market. The situation now is not as bad as it was in 1997,' Mr Shih said.
