Hong Kong developers lower prices to generate sales amid interest rate hikes, high supply
- Developers will first test the water with low starting prices, seeking higher sales volume before achieving a higher price, Ricacorp Properties analyst says
- Rate hikes could limit the upside potential of home prices: JLL executive
Hong Kong property developers are offering new projects at lower starting prices to stimulate sales in an environment of rising interest rates and increasing supply of flats.
“Developers will first test the water with low starting prices, seeking [higher] sales volume before [achieving a higher] price,” said Derek Chan, head of research at Ricacorp Properties.
Hong Kong home buyers pile in after banks deferred mortgage hikes
As a result, the monthly repayment of a HK$5 million loan for 30 years at the rate of 1.3 per cent above the Hibor on Monday rose 5.4 per cent from early March, before the first interest rate rise in the US, to HK$18,254, according to mReferral Mortgage Brokerage Services’ mortgage calculator.
“Facing interest rate hikes in the US, some buyers may be more hesitant,” said Ricacorp’s Chan.
In a market dominated by self occupiers, who are likely to be more price sensitive, such rate hikes could limit the upside potential of home prices, said Joseph Tsang, chairman at JLL Hong Kong. The property consultant has forecast a 5 per cent decline in home prices this year.
“The US rate hike will have a cooling effect on investment demand. Buyers will prefer to put their money in banks, which is risk free,” he said, adding that the price gap between the primary and secondary markets will narrow to 15 per cent from 20 per cent currently.
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The Centa-City Leading Index (CCL), a gauge of lived-in home prices compiled by Centaline Property Agency, reported the biggest drop in 12 weeks at 0.95 per cent to 180.78 for the week ending on June 12.
Two days before SHKP announced its lowered price list, CK Asset Holdings revealed the starting price for the first batch of units at Grand Jete development, which at HK$4.37 million for a 284 sq ft flat. The pricing for Grand Jete, which has been developed by CK Asset and SHKP, is 10 per cent cheaper than new projects in the area, according to Centaline Property Agency.
The rate hikes could potentially coincide with the launch of about 12,646 units this year and early 2023, according to an estimate by JLL.
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“The market will automatically adjust according to the actual environment. Under the large supply, the pricing of new developments needs to be more competitive,” Chan said.
Natalie Gao, 35, who bought a one bedroom, 400 sq ft home in Hong Kong’s Discovery Bay in 2018 for about HK$5 million, said the a couple of hundred more in mortgage payments each month will not add “too much pressure” to her life.
“But I might want to plan a bit further now, as it seems that this is just the start of an interest rate hike cycle. I am considering cooking more at home and cutting down spending on dinning in,” she said.
Additional reporting by Sandy Li and Pearl Liu