Worst month since 1991: new home sales in Hong Kong plunge 80 per cent in January

The recent withdrawals of government land sales as a result of poor bids and the return of negative-equity homeowners are adding to strains in a rapidly weakening Hong Kong property market, with analysts saying developers will be forced to cut prices aggressively to stay afloat.

Centaline Property Agency estimates total property transactions in Hong Kong in January was on track to register its worst month since 1991, when it started compiling monthly figures.

Total transactions are likely to have hit 3,000, it said in a survey released on Sunday. With developers slowing down new launches, only 394 units were sold in the first 27 days of January, 80.3 per cent lower than the 2,127 deals lodged in December. Meanwhile, sales of used homes fell by a fifth to 1,276 deals in January.

The government will announce the official data in the coming days.

A similar picture emerges from another survey by Ricacorp Properties, which shows 2,908 deals were lodged with the Land Registry in the first 28 days of January.

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Analysts said developers slowed down new launches after the US implemented its first interest rate in a decade. Hong Kong commercial banks are expected to follow suit in the coming months, pulling up mortgage rates.

“Developers have to offer very attractive prices if they want to find buyers for their flats,” said Derek Chan, head of research at Ricacorp, adding that developers might even have to offer units at prices below the secondary market.

Owners of existing homes have cut prices by more than 10 per cent around Hong Kong. Home prices – after a 12-year upcycle – fell 10 per cent from their peak in September. Some analysts expect prices to fall more than 30 per cent by 2017.

Dorothy Chow, regional director of Valuation Advisory Services at international property consultant JLL, said developers have become more bearish on the Hong Kong property market, partly

after the recent withdrawal of two government plots from sale.

Last week, a site that went up for tender in Yuen Long was withdrawn as all bids were below the undisclosed reserve price set by the government.

Site are not sold if developers offer bids below the reserve price. The last time a site was withdrawn from tender was in November, in Tsing Yi.

However, the government has not lowered the undisclosed reserved price to reflect the new market reality.

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Developers are eager to add to their land banks when the market is good but may become more selective in tougher times, especially given the anticipated new supply set to hit the market in the next two to three years, said Chow. “More withdrawals will be seen if the government does not revise the reserved prices.”

On the return of negative-equity homeowners,who owe more than the value of their properties, Chow said the situation is not that serious.

The Hong Kong Monetary Authority (HKMA) on Friday announced that the estimated number of residential mortgage loans that are in so-called negative equity had hit 95 as of December, according to its latest survey. The total value of these home loans amounted to HK$418 million.

This was the first time the surveyed authorised institutions reported negative equity cases since the end of September 2014, said the HKMA.

Last February, the HKMA tightened the loan-to-value ratio to 60 per cent from 70 per cent for flats under HK$7 million. New owners hence have a 40 per cent equity buffer, said Chow, but said some negative-equity cases would occur among those who have borrowed from non-bank financial companies.

According to HKMA data, the number of homeowners with negative equity – before the phenomenon resurfaced again lately – had fallen to zero from its peak at 105,697 in July 2003 at the height of a property downturn when home prices plunged up to 70 per cent.