Hong Kong housing

Negative equity cases jump 14 times as Hong Kong property prices fall again in March

Number of private homes under construction hit record 13,300 units in first quarter

PUBLISHED : Friday, 29 April, 2016, 12:26pm
UPDATED : Friday, 29 April, 2016, 9:06pm

Hong Kong’s tottering residential market was hit by a gust of negative news on Friday, with the supply of new private homes projected to rise to a record high of 92,000 and negative equity cases rising alarmingly as home prices continue to fall.

The Rating and Valuation Department’s latest data showed home prices fell in March for the sixth straight month, by 1.3 per cent. With that, Hong Kong’s once-sizzling property prices have now lost 11.7 per cent in the last six months.

With prices on the down, the incidence of negative equity – potential indebtedness when the market value of a property falls below the outstanding amount of a mortgage secured on it – is spreading quickly. The Hong Kong Monetary Authority (HKMA) said the number of negative equity cases rose 14 times to 1,432 in the first quarter of this year from the previous quarter – the highest number since the fourth quarter of 2011.

Hong Kong’s record in negative equity cases stands at 105,697, set at the height of the Severe Acute Respiratory Syndrome (Sars) epidemic in 2003.

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“Since property prices are in a down cycle, the number of negative equity cases will continue to increase this year. That will put prices of second-hand homes under considerable pressure, with more foreclosed properties released for auction,” said Henry Mok, regional director at property consultancy JLL.

The number of foreclosed properties have already doubled in Hong Kong from a year ago to about 130.

The number of private homes under construction hit a record 13,300 units only in the first quarter, compared with 14,200 for all of last year, according to the Transport and Housing Bureau.

In its latest report, the bureau estimates 92,000 new private homes will come on the market in the next three to four years, an upward revision of 5,000 units from its previous quarterly report.

Some 1,800 units were completed in the first quarter. According to the Rating and Valuation Department’s preliminary findings of the Hong Kong Property Review 2016, 18,200 units will be completed this year. Last year, 11,300 private residential units had been completed.

Although the supply of new homes has increased, analysts do not see chances of a housing market crash, saying actual demand would remain strong in the long run. But home prices, they say, will continue to fall in the next two years because of increased supply, potential interest rate increases and a weakening economy.

“The new data is a signal to the citizens that the government has the determination to increase land supply for home production so that home seekers do not need to rush into the housing market in the wake of the recent decline,” said Thomas Lam, head of valuation and consultancy at international property consultancy Knight Frank.

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Lam said the actual demand for homes would remain strong in the long run, with an annual take-up of around 20,000 units, going by previous data.

Financial Secretary John Tsang Chun-wah has said property prices are still out of tune with the overall economic situation and general affordability. As of February, overall property prices were still 58 per cent higher than their previous peak of 1997.

An increasing number of property analysts expect home prices to fall in the next two years, with Nomura predicting they will fall by a further 19 per cent by the second quarter of next year.

JLL’s Mok said that because buyers are cautious about the market outlook, more developers would likely need to offer steeper discounts.