Hong Kong property ‘price war’ imminent as Li Ka-shing’s CK Asset slashes flats to lowest seen in city in 7 years
- Developer cuts prices at Coast Line II in Kowloon to US$1,921 per square foot – 16 per cent below other recent launches
- Bid to boost buyer sentiment draws deposit cheques from more than 8,000 prospective buyers for 254 units
Hong Kong homebuyers rushed to snap up new flats at the lowest prices the city has seen in seven years, betting that the flagship property company of Hong Kong’s richest man has the correct reading of the slumping market.
“The launch of Coast Line II is just the beginning of a price war,” said Joseph Tsang, chairman of JLL in Hong Kong, who called CK Asset’s aggressive pricing a bid to raise attention and spark an improvement in sentiment among homebuyers who are reluctant to buy right now because they foresee prices continuing to fall.
A 16 per cent discount to other projects is not shockingly low but is in line with the current market situation, Tsang said, as the government index shows the market corrected itself by around 14 per cent already during 2022.
“What CK Asset did is actually quoting a more down-to-earth, more realistic and more updated market price,” Tsang said. “If new projects are launching at a normal market price, the responses are going to be very slow and cold.”
In addition, phase II of the project does not have guaranteed sea views like phase I, which has 228 units but has not yet been announced for sale. CK Asset will probably raise prices “along the way”, Tsang said.
Raymond Cheng, managing director of property management at CGS-CIMB Securities, agreed CK Asset is likely to raise the project’s prices gradually. He expects the average price for the whole project will eventually work out to at least HK$16,000 per square foot.
The gross margin for the whole project will be about 25 to 30 per cent, Cheng said, which is still a reasonable profit for the company, albeit lower than the 30 to 40 per cent yield from projects over the years.
Don’t expect Hong Kong property prices to recover any time soon
Meanwhile, the number of unsold units in completed projects is the highest since 2007, according to JLL. A total of 83,000 housing units are available in Hong Kong, with 18,000 in completed projects and the rest under construction. About 25,000 more units are expected to hit the market in 2023.
“In order to digest inventory, developers understand they need to offer some discounts,” Cheng said.
The glut of new supply in the second half will further exert pressure on the already floundering residential market amid a challenging external economic environment, high interest rates and a slow economic recovery in mainland China.
“The property market is going to have a few tough years ahead,” said JLL’s Tsang, whose firm expects home prices to drop 5 to 10 per cent in the second half, resulting in a total drop of 5 to 8 per cent in 2023.
Price pressure in the new-home market has spilled over to the secondary market as well.
“Transaction volume over the weekend has frozen” in the secondary market, said CGS-CIMB’s Cheng.
Only four secondary-market sales were recorded over the weekend across the city, one better than the previous weekend, according to Ricacorp Properties. Midland Realty also recorded four sales and Centaline Property had just three deals.
The Coast Line II’s low prices will also affect the secondary market nearby, with local homebuyers bargaining an additional 5 to 10 per cent discount.
Sammy Po Siu-ming, CEO of Midland Realty’s residential division for Hong Kong and Macau, said secondary transactions will continue to hover at a low level.
“The purchasing power of buyers is seriously skewed, and the overall property market has become polarised, busy in the primary market and quiet in the secondary market,” Po said.
