Hong Kong home prices fall 2.4 per cent in October, marking a third consecutive monthly drop at a quickening pace

Home prices in Hong Kong slid for a third month – and picked up the pace.

Hong Kong lived-in home prices dropped 2.4 per cent in October. That means home prices have fallen 3.6 per cent in total after peaking in July after a 28-month rally that began in April 2016.

The price index of used homes dropped to 380.3 in October from 389.5 in the previous month, a much bigger decline than the 1.3 per cent recorded in September, and the 0.03 per cent in August, according to data released by the government’s Rating and Valuation Department on Friday.

Analysts often say that three makes a trend, so the latest data are significant for property watchers, developers, owners, buyers and renters.

“It is dropping faster than we expected,” said Derek Chan, head of research at Ricacorp Properties. “If an owner does not cut their asking price, it will be very difficult at this moment to sell his apartment. We see some have cut their offered prices by as much as 20 per cent.”

Centaline Properties on Thursday brokered the sale of a 499 square foot unit at Grande Yoho in Yuen Long for HK$6.98 million (US$892,200). It was not only nearly 18 per cent lower than the asking price of HK$8.5 million, but also HK$112,000 lower than the price the owner paid in 2016.

The drop in home prices comes as mortgage rates, supply and concerns about the US-China trade war have all increased.

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A looming vacancy tax, for example, has spurred developers to offer luxury flats that have been hoarded for appreciation riches for as long as 10 years. Meanwhile, developers selling new flats have been offering deep discounts and other come-ons to unload properties for fear of a deepening downturn.

Hong Kong’s lived-in home prices increased 12 per cent through July from the start of the year. With the three months of slippage, home prices are now 7.8 per cent higher that in December 2017. Market observers believe that a continuing decline in the next two months is inevitable.

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Ricacorp has further downgraded its estimate of how much home prices will rise this year to about 5 per cent. Forecasters earlier expected a 15 per cent gain for lived-in homes.

While Friday’s data wasn’t a good signal for those needing to sell their homes soon, younger and other first-time buyers may see it as a good opportunity.

“I was so panicked when I first started house hunting earlier this year as I felt that I just cannot afford one if I do not made a decision now,” said Angela Li, a 35-year-old financial professional.

“But now I think I can take my time a bit.”

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Private sales flats are also showing signs of distress.

On Saturday, only three out of 150 units on offer were sold at The Esplanade in Tuen Mun, a development by Hong Kong builder Chuang’s China Investments. The cheapest flat – 162 square feet – sold for HK$2.9 million (US$364,150). In comparison, a standard parking space in Hong Kong is 134 square feet, and an average prison cell at the government correctional facility in Stanley is roughly 85 square feet.

The first day sell-through rate for new residential projects eased to 51 per cent in October, significantly lower than the average 97 per cent recorded from January to September, data from JLL showed.

A supply of more than 1,000 units is in the pipeline. Sino Land’s 1,999-unit Grand Central residential project will start the sales of the first phase of 1,025 units by the end of the year.

The detailed price list of Grand Central, located in Kwun Tong in East Kowloon, has not been released, but analysts believe that developers will take a cautious approach, with discounted prices, cash rebates and long payment period.

“More developers will cut prices later to drum up sales,” said Denis Ma, Head of Research at JLL Hong Kong.

And we aren’t at the end of the downward pressure, analysts said.

Chan at Ricacorp said that another 3 to 5 per cent drop will be recorded in the first quarter in 2019 and prices will at best flat for the first half of next year.

“The market may not pick up until the Lunar New Year holiday ends,” said Chan, referring to the Chinese holiday that will be observed from February 5 to February 7 in 2019.