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

Lam Ka-sing

Published: 7:30am, 21 Jun 2022

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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.

Sun Hung Kai Properties (SHKP), Hong Kong’s biggest developer by sales, for instance, on Sunday set the starting price for a 217 sq ft flat at its Silicon Hill project at HK$3.85 million (US$490,460) in its latest price list. This was lower than the HK$4.97 million it asked for a 291 sq ft flat in the first round of sales on June 3.

“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.

Homebuyers in the city whose mortgage is linked to the Hong Kong Interbank Offered Rate (Hibor), had seen their repayments go up since March, when the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, raised rates in lockstep with the US Federal Reserve. On Monday, however, the one-month Hibor more than doubled to 0.61 per cent, from 0.28 per cent when the US raised interest rates for the first time this year on March 17.

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This is because the Fed announced its biggest one-time increase in 28 years last week, which prompted the HKMA to also raise Hong Kong’s base rate by 75 basis points to defend the stability of the local financial system.

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.

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“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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Developers may speed up launches, because it will be easier to launch projects before any further increases in local interest rates, said Ricacorp’s Chan. Moreover, developers “will need to catch up after slow progress in the first half of the year”, he added.

“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

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