Hong Kong property

Sun Hung Kai’s discounts help buyers shrug off storm and rising rates for Yuen Long apartments

The developer offered discounts of up to 16 per cent, selling out 85 per cent of available units at the end of the day

PUBLISHED : Saturday, 11 August, 2018, 4:20pm
UPDATED : Saturday, 11 August, 2018, 11:31pm

Hong Kong’s first property sale after the end of a decade of low mortgage rates got off to a good start, as hundreds of buyers braved a thunderstorm to snap up flats at the Park Yoho Milano complex in Yuen Long, attracted by 16 per cent discounts offered by Sun Hung Kai Properties.

The largest housing developer in Hong Kong sold 112 of the 131 units of Park Yoho on Saturday, with prices averaging HK$15,549 per square foot (US$22,000 per square metre), 13 per cent higher than an earlier batch of apartments sold on August 4 in the same project, agents said.

The number of bids received from interested buyers on each available apartment fell to nine, from 21 last weekend. What changed last week was the successive announcements by 15 of Hong Kong’s commercial banks to raise their mortgage rates for new borrowers by 10 basis points, equivalent to HK$50 more in monthly instalments for every HK$1 million borrowed.

“The turnout is quite good,” said Sammy Po, chief executive at Midland Realty’s residential department, who expects Hong Kong’s largest developer to sell up to 90 per cent of the available units by the day’s end. “People had already been expecting banks to raise mortgage rates.”

The real pain will come in September, when Hong Kong’s monetary authority is expected to raise the benchmark interest rate in lockstep with the US Federal Reserve to maintain the city’s currency peg with the US dollar.

The cap on mortgages linked to the Hong Kong interbank offered rates (Hibor) will be adjusted to prime rate minus 2.9 per cent, while prime rate-linked mortgages will change to prime minus 3 per cent. HSBC, Bank of China (Hong Kong) and Hang Seng Bank have set their prime rates at 5 per cent while Bank of East Asia, Citibank and Standard Chartered set theirs at 5.25 per cent.

Hong Kong’s property market, where the median housing price had risen for 27 consecutive months in July, is poised for a decline, if the stock market is any indication.

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Equities, which typically lead the trend in residential property, have been in the doldrums of late. The Hang Seng Properties Index, which tracks the performance of the city’s publicly traded real estate developers, has fallen to 38,000 from its 43,988 peak in mid-January, following the bull run during the days of low interest rates from 14,222 in 2008.

The Hong Kong dollar, which deteriorated last week, touched 7.8500 per US dollar at the weaker end of its trading band.

The city’s economy, where half of trade is related to commerce with mainland China, grew at a slower pace in the second quarter, feeling the effects of the ongoing trade war between the world’s two largest economies. Gross domestic product grew 3.5 per cent from a year ago, slower than 4.6 per cent three months earlier. Growth fell 0.2 per cent quarter-on-quarter.

This means rising mortgage rates are arriving at a time when Hong Kong’s economy is slowing, said ING Bank’s greater China economist Iris Pang.

Last week, SHK sold all 328 flats offered at Park Yoho, pulling in HK$2.8 billion (US$357 million) as the city government’s new vacancy tax programme forced developers to speed up the release of their inventory of completed flats to ease pent-up demand in the world’s most expensive real estate market.

Before the tax, some developers would hoard their completed property, creating an artificial shortage that caused median prices to soar, putting housing beyond the affordability of many first-time buyers and school leavers.

Yoho Park, scheduled for completion in April 2019, received its occupation permit early this year. Its developer would be liable for the vacancy tax, if the project is not released for sale within six months of receiving the occupancy permit. The draft bill is expected to be enacted into law over the next year, and will be made retroactive to its June 29 announcement date.