Hong Kong’s home sellers are cutting their property prices as interest rate increase looms
CLSA joins Citibank, UBS, Nomura and Ricacorp Properties in saying the long-running uptrend in home prices could grind to a halt and head the other way if mortgage costs increase, coupled with a continued depreciation of the yuan
Growing numbers of Hong Kong flat owners are selling up for much less than offer prices – some at more than HK$7 million (US$890,000) below bank valuation – as a rise in interest rates looms next week.
According to the latest data from CLSA, the offshore arm of China’s biggest brokerage, between August 1 and September 6, at least 29 cases of low to mid-range properties were recorded as being sold for much less, 19 of them at below Hang Seng Bank valuations.
“[Homeowners] are not positive about the prospects [for the home market]. They fear that if they ask for prices that are too high, their flats cannot compete with others,” said Nicole Wong, managing director of property research at CLSA, which was founded in 1986 and acquired by state-owned Citic Securities five years ago.
For instance, CLSA’s data shows a 998 square foot flat at the Park Towers development in Causeway Bay sold for HK$33 million on August 7 – that’s 18.3 per cent below Hang Seng’s valuation of HK$40.4 mi
One at Whampoa Garden sold on August 25 for HK$10.5 million, a 13.2 per cent down on its HK$12.1 million valuation, while another flat at Park Central development in Tseung Kwan O sold on August 1 for HK$8.3 million, 12.3 per cent below valuation.
“Sellers are cutting their prices to unload stock to attract buyers and would rather cash in than hold on,” said Wong, and she expects the trend to continue.
“It is just the beginning of a 15 per cent price correction over the next 12 months, we think.”
CLSA’s prediction chimes with others in recent days by Citibank, UBS and Nomura, who have all said the long-running uptrend in home prices could grind to a halt and head the other way if mortgage rates rise, coupled with a continued depreciation of the yuan.
While Ricacorp Properties said on Thursday that the average square footage price of 50 major residential estates dropped 0.3 per cent to HK$15,259 last month, the first slip since April 2016.
It said the number of transactions also collapsed 31 per cent to a 30-month low of 291 last month, the second consecutive monthly drop.
Willy Liu, Ricacorp’s chief executive, is now predicting that number of transactions and average prices of those 50 are likely to drop by as much as 20 per cent, and 0.8 per cent respectively, this month.
Home price in what is now considered the world’s least affordable housing market have enjoyed a 28-month rally, according to Rating and Valuation Department.
“It has not been reflected in price indices, yet,” said Wong. “[But] the downtrend has started. The trend for record rises in home prices is reversing.”
But even if Hong Kong’s home price plummet by 25 per cent, that will only be “back to the level of mid-2017”, she added, and such a drop will not be enough to “cause government action, as most people will still find homes unaffordable”.
Ricacorp’s Liu said Kowloon saw the most significant falls, with average prices at 21 estates and the number of transactions dropping 0.5 per cent to HK$16,440, and 35 per cent to 97 sales, he said.
“Headwinds such as the worsening trade war [between China and the US] and the likely rise in interest rates have troubled the market” said Liu.
“Potential buyers are extremely cautious. As the market trend reverses, some homeowners eager to sell can only reach a deal, if they cut their prices.”