Surge in Hongkongers walking away from new-home deposits as confidence wanes
- Thirty-six cases of homebuyers forfeiting deposits paid to developers so far this year, compared to only nine in 2017
The number of Hong Kong homebuyers walking away from new home purchase agreements – and the 5 per cent deposits used to secure them – has surged, reflecting growing bearishness on the outlook for the world’s most expensive property market.
Since the start of the year through Friday, a total of 36 homebuyers have opted to cancel their purchase agreements, in some cases forfeiting deposits worth as much as HK$2 million (US$254,979), according to data complied by Dataelements and the South China Morning Post.
The home purchase forfeitures recorded so far compare to just nine for the whole of 2017.
“The number of default cases this year was high,” said Louis Chan Wing-kit, Asia-Pacific vice-chairman and residential division chief executive at Centaline Property Agency.
Buyers who terminate their purchases will lose the deposits paid to developers. The largest abandoned transaction involved a HK$39.8 million purchase of a 1,509-square foot flat at Sun Hung Kai Properties’ Cullinan West II near Nam Cheong Station costing HK$2 million, according to the data.
The defaults involve new homes ranging in price from HK$4.9 million to HK$39.8 million, or a cumulative total value of HK$247 million. Still, most defaults were related to lower-priced homes with about 66 per cent on units priced below HK$8 million.
Aborted transactions were also recorded in the secondary residential market in early October.
In one instance, a 27-year-old banker cancelled a HK$32.8 million deal for a 852-sq ft lived-in home in Grand Austin near West Kowloon Station, despite losing as much as HK$2 million.
The buyer changed his mind and wanted to hold cash due to the recent downturn in the stock market.
Sammy Po Siu-ming, chief executive of Midland Realty’s residential division, said homebuyers often pull out from transactions when they think the bearish stock and property markets may threaten their job security and ability to afford instalments.
Some buyers may have cancelled their purchases after their mortgage applications were rejected amid tighter liquidity stress testing standards designed to ensure buyers can afford to weather financial hardship, Chan said.
For a typical HK$4 million, 30-year loan priced at prime minus 2.75 per cent, a 12.5-basis point increment increases the mortgage to 2.375 per cent, raising the monthly payment by HK$288 to HK$15,556, according to mReferral Brokerage Service. Prime now stands at 5.125 per cent.
“Customers might have failed to get a favourable mortgage plan after shopping around, or simply disliked the flat after purchasing,” Po said.
The weakening sentiment may have also been affected by poor sales at new residential projects recently.
Developer Chinachem Group received a disappointing result for its Sol City project in Yuen Long, with only about 40 per cent of the 504 units sold when it opened on Friday. Meanwhile, Chuang’s China Investments reported that only 35 per cent of the 175 units on offer at The Esplanade in Tuen Mun were bought during debut sales on Thursday, according to market sources.
“Property prices will continue to fall in the last quarter this year, but the first quarter next year will depend on the trade war and the extent of interest rate hikes,” said Po.