Hong Kong property

Has the real estate bubble burst? Hong Kong flat prices return to early 2014 levels, experts say the drop will continue

Home prices for small flats in Hong Kong have lost 15-20 per cent of their value, and experts say another 10 per cent drop is possible

PUBLISHED : Tuesday, 02 February, 2016, 9:00am
UPDATED : Tuesday, 02 February, 2016, 9:37am

Hong Kong flat prices have plunged to the early 2014 level as panicky individual owners dump some small apartments in the city’s New Territories which where hardest hit by the market turmoil, says industry experts.

Prospective buyers with a budget of HK$3 million will see more choices now than five months ago during the market peak in September last year.

Home prices for small flats in Tuen Mun, Tin Shau Wai and Yuen Long have lost 15 to 20 per cent in value. But agents believe the falling trend has spread to other parts of the city given the rising number of negative equity for houses and defaults on new projects could depress the appetite by buyers.

“Prices are likely to fall a further 10 per cent in view of slack demand,” said Alvin Cheung Chi-wan, associate director at Prudential Brokerage. He believes the price correction could come faster and sharper as a rash of negative news spooked end users and investors.

“Individual owners have become more realistic and willing to cut prices at least 15 per cent to attract buyers ...”

Louis Chan Wing-kit, the managing director of Centaline Property Agency’s residential department, said the number of transactions at 10 housing estates that the firm monitored have increased largely because of more units being offered at lower prices.

“Individual owners have become more realistic and willing to cut prices at least 15 per cent to attract buyers,” he said.

After the Lunar New Year holiday, Chan expects developers would launch their new projects at 20 to 25 per cent lower from those put on sale last September. Chinese New Year is on February 8.

“Then, it will provide a good buying opportunity,” Chan said, adding developers have no choice but to chop down launch prices as competition for buyers is getting fierce.

Individual owners, particularly those with small apartments in the New Territories, have become anxious given the market’s growing uncertainties.

Recently, a 282 square-foot unit at Tak Bo Garden in Kowloon Bay sold for HK$3.08 million, about 22 per cent lower than those flats which changed hands in October last year, according to Ricacorp Properties.

Leo Ng, a senior sales manager at Centaline Property Agency’s Tuen Mun branch said there are 150 units which have been put on sale in the secondary market.

Last week, a 393-sq-ft unit at the phase one development of Tai Hing Garden in Tuen Mun, about 10 minutes walk to West Rail’s Tuen Mun Station, sold for HK$2.82 million.

Transaction prices for a similar size unit in Tai Hing Garden were HK$3.38 million early this month, according to Ricacorp Properties.

The abrupt change in market sentiment comes as the Hong Kong Monetary Authority (HKMA) announced the number of homeowners who owe more than the value of their property has shot up for the first time in nearly a year and a half while the supply of new flats is set to climb to a 12-year peak.

On Friday, HKMA said the number of residential mortgage loans in so-called negative equity was 95 as of December, according to its latest survey. The total value of the loans was HK$418 million.

Cheung believes the number of negative equity cases would continue to rise as home prices haven’t found their floor yet.

“The current market downturn would not repeat the Sars market turmoil in 2003,” he said.

Negative equity occurs when a home loan exceeds the market value of the property. Since the number of negative-equity homeowners reached a peak of 105,697 in 2003, when home prices plunged up to 70 per cent, no cases were reported until the third quarter of 2014.

Developers are offering cash rebates to celebrate the upcoming Chinese New Year to stimulate buying interest. Sino Land offering 6 per cent discounts and 15 per cent cash rebate to compensate for the buyers stamp duty for non-local residents on Friday to boost the sale of the remaining 9 villas at Providence Peak in Tai Po.

Factoring all discounts, the unit price will be about 4.4 per cent lower than the previous launch in 2014. Sun Hung Kai Properties increased the size of incentives to 12.5 per cent, from 8 per cent in 2013, to stimulate the sale of Shouson Peak in Deep Water Bay.