Hong Kong homeowners slash prices as they race to sell before property values fall further

Owners are only managing to attract buyers when they cut prices by at least 10 per cent from what they were two months ago, says analyst
Analysts warned a further fall in pre-owned home prices could fire up the number of negative equity cases in the coming months

Hong Kong property

Peggy Sito

Published: 9:30am, 1 Aug 2023

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Homeowners in Hong Kong are offering steep discounts as they race to offload their properties quickly before the market falls further.

In a recent case that underscores the trend, a seller in Tai Po was forced to take a 28 per cent loss when he offloaded his property for HK$4.3 million (US$550,000) less than he had paid for it in 2019.

Owners are only managing to attract buyers when they cut prices by at least 10 per cent from what they were two months ago, said Louis Chan Wing-kit, CEO of the residential division at Centaline Property Agency.

“If [owners] want to offload their properties now, they have to cut asking prices substantially as home prices are likely to fall further in the coming quarters,” he said.

On Monday, the Hong Kong Monetary Authority (HKMA) said the delinquency rate on residential mortgage loans in negative equity between April and June increased to 0.09 per cent from 0.04 per cent at the end of March.

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There were 3,341 cases of negative equity – where the value of a home falls below that of the mortgage on it – at the end of June, the results of a quarterly survey by the HKMA showed. This was a 47.6 per cent drop from 6,379 instances in the previous quarter.

But analysts said a further fall in pre-owned home prices could fire up the number of negative equity cases in the coming months as owners rushed to cash out before the market slumps too far.

Hong Kong’s house prices have come under pressure from rising interest rates that make mortgages more unaffordable.

The HKMA last week raised the city’s base rate for the 11th time in 17 months in lockstep with the Federal Reserve, as the US central bank resumed its fight against inflation after a breather six weeks ago. Hong Kong’s monetary policy follows the United States as the city’s currency is pegged to the US dollar.

Hong Kong’s commercial banks including Bank of China (Hong Kong), HSBC and Hang Seng Bank raised the lending rate for their best customers by 12.5 basis points to 5.875 per cent starting Friday after the 25 basis points increase in the base rate to 5.75 per cent.

There were only two transactions recorded at the 10 largest housing estates in the city over the weekend, according to data compiled by Centaline Property Agency, the lowest volume in the last 12 weeks.

In some cases, owners have been accepting significant losses as they desperately try to drum up interest in their properties.

A 789 square-foot, three-bedroom unit with parking space in phase one of The Horizon development, located at Pak Shek Kok in Tai Po, was recently sold at a 28 per cent discount, for HK$10.95 million.

“The owner offered the unit at a price of HK$12 million two months ago but did not get any interest,” said Dick Lam, a property agent at Midland Realty. The sale represented a booked loss of HK$4.31 million when compared with the HK$15.26 million the owner paid in January 2019.

Meanwhile, a 672 sq ft, three-bedroom unit in the fifth phase of Mei Foo Sun Chuen in Lai Chi Kok changed hands for HK$7.38 million, a 24 per cent discount, and a 601 sq ft three-bedroom flat in Serenity Place in Tseung Kwan O went for HK$6.2 million, a 14 per cent loss.

New supply of houses is another concern for sellers in the secondary market.

There are 83,000 new homes available, according to Joseph Tsang, chairman of JLL’s Hong Kong office.

“Developers have a lot of stock to be offloaded,” said Tsang.

Derek Chan, head of research at Ricacorp Properties, said the transaction volume would continue to drop plagued because of the latest rate hike.

“But home seekers will gradually come back to the market as the economy in the city improves,” he added.