Hong Kong banks slash valuations on homes: analysts predict bear market

Lenders are increasingly setting residential property values below transaction prices

PUBLISHED : Monday, 09 November, 2015, 12:33am
UPDATED : Monday, 09 November, 2015, 3:19pm

Banks are slashing valuations for residential properties, in yet another sign of an approaching bear market in the city's real estate market.

"Lenders are increasingly setting property values below transaction prices," said mortgage broker mReferral's analyst Sharmaine Lau Yuen-yuen, adding that it indicates banks expect prices to slide in the secondary market.

In a recent report, investment bank Jefferies said banks have been trimming valuations by 2 to 15 per cent since the end of August.

Uncertainty about home prices is discouraging some buyers from completing transactions, Jefferies said in the report.

Apart from banks, developers' aggressive financing plans offering first mortgages of up to 90 per cent of the home price also signal fears of a downturn.

Property agents said owners are cutting prices to offload assets. One Taikoo Shing flat owner sold his 680 square foot home for HK$10.45 million, HK$2.05 million below the asking price he set a year ago. The final transaction price was 12 per cent below the market level, according to agents.

"It will be a downward spiral when expectations further weaken as a result of increasing pressure of price markdowns and poor secondary-market liquidity," Jefferies' analyst Venant Chiang said in the report.

According to Jefferies, home prices have risen more than 150 per cent in the past seven years, making Hong Kong the world's most expensive place to live and the worst in terms of housing affordability, requiring 17 years of income to buy a property.

The investment bank expects the market to normalise with home prices falling 30 per cent in the next one to two years. That fall will happen gradually since there are no signs of a financial crisis, it believes.

Home prices have been under pressure as interest rates are poised to rise and the government last week said a record 86,000 flats are due to be completed by 2019.

Centaline's Centa City Leading index, the weekly index monitoring secondary home prices, fell for four consecutive weeks to 141.76 in the week to November 1.

Chiu Kam-keung, head of valuation and advisory, Asia-Pacific, at DTZ/Cushman & Wakefield, said he has noticed banks cutting valuations but added he does not believe home prices will see a major drop unless the economy deteriorates suddenly and unemployment jumps.

In the primary market, buyers are still showing strong interest as developers offer competitive prices.

Wheelock Properties said it received 9,000 applications for the coming launch of 88 units at its Capri development in Tseung Kwan O. The units are priced at HK$12,080 per square foot on average, about 20 per cent below other launches around the middle of this year.