Homebuyers getting cold feet in Hong Kong’s property market amid growing uncertainties

Some buyers are so edgy about the Hong Kong property market that they are pulling out of deals, despite losing big deposits.

A buyer who agreed to buy a unit at Sun Hung Kai Properties’ St Martin II two weeks ago cancelled the purchase on Thursday. The U-turn on the HK$7.25 million studio unit in Tai Po in the New Territories meant the buyer had to forfeit the 5 per cent deposit – about HK$362,700 (US$46,200).

That followed five instances on Wednesday at Sun Hung Kai’s Park Yoho Milano in the northern Yuen Long district. A total of nearly HK$2 million will be charged for the sales terminations. The project debuted last month and was seen as the cheapest residential project this year.

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The reversals come amid growing uncertainty in the home property market.

Buyers are starting to have second thoughts on flats, which some analysts say could be a signal of a meaningful turn of sentiment in a market that has become used to ever-growing prices, cheap loans and stiff competition for tight supply.

A gloomy outlook appears to be settling in as banks raise mortgage rates, the US-China trade war brings uncertainties, stock markets struggle and Hong Kong government measures to cool prices start to bite.

“Seeing some developers tag their new flats at a less aggressive level or even lower down the prices, buyers are expecting more cheaper new flats to be put onto the market soon,” said Vincent Cheung Kiu-cho, deputy managing director for Asia valuation and advisory services at Colliers International. “The sentiment will last at least a quarter.”

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The Zumurud development in Ma Tau Kok developed by CK Property and Empire Group Holdings also reported that a buyer in late July pulled out of a contract that had been signed in April. The buyer faces a loss of over HK$2 million for cancelling the deal.

Such soured interest has spread to lived-in home sales. Agents confirmed that last week the transaction of a 589 sq ft flat at Harbour Place in Kowloon’s Hung Hom was terminated and at least 3 per cent of the home price, or nearly HK$400,000, will be charged for the withdrawal.

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On Wednesday, Sun Hung Kai offered 119 units at its Cullinan West II development atop Nam Cheong MTR station in Kowloon at an average price of HK$23,893 per square foot after discounts, about 10 per cent lower than the prices of a previous batch offered for sale last December. Analysts are expecting other developers to follow in an attempt to win over buyers.

Sales of flats slowed down in July and are expected to be further deflated in August. Data from agency Ricacorp showed 1,740 new home sales contracts were signed in July, 15 per cent lower than in June. By August 14, only 711 deals for new flats were recorded. Contracts for lived-in homes numbered 4,040 last month, 7 per cent lower than June, and only around 1,300 deals have been booked so far this month.

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“There should be a change as home prices have been unreasonably high,” said Nicole Wong, regional head of property research at CLSA. “Some buyers just rushed to nail down a flat and did not do the calculations thoroughly. I have to say that those who bought one in the first half are just very brave.”

July was the 27th consecutive month that the median house price in Hong Kong rose, and in the first half of this year alone, home prices rocketed 13 per cent. Yet, the pace of the increase in prices is slowing, with July being the second straight month to see some pullback.

Meanwhile, UBS has predicted prices will tumble as much as 10 per cent from this month to the end of 2019, while Citibank has forecast a 7 per cent fall in the second half of this year.