Monday 22 January 2018

Hong Kong house prices fall, and investors splurge

The Hong Kong skyline at night - house buyers are flocking to the market there
The Hong Kong skyline at night - house buyers are flocking to the market there

Michelle Yun

On a Saturday morning in mid-June, thousands wait, crammed into Hong Kong's Fortune Metropolis mall, across Victoria Harbor from the main business district, their eyes locked on large elevated screens. Cheers erupt when numbers flash, indicating the lucky ticket holders in the crowd.

They have paid HK$150,000 (€16,000)) to enter a lottery that prioritizes buyers of apartments at City Point, a seven-tower development that billionaire Li Ka-shing's Cheung Kong Holdings Ltd. is building. More than 5,000 homebuyer-hopefuls are vying for 442 units, or about 11 for every home that went on sale the weekend of June 14.

Housing sales in Hong Kong are rising after government efforts to cool soaring prices led transactions to plunge last year to the lowest since at least 2002. A drop in mortgage rates and discounts from builders are luring back buyers of new homes after their price fell as much as 20pc since October.

"Six months ago, I was certainly more cautious than I am now in terms of pricing," said Peter Churchouse, founder of property investment firm Portwood Capital. "You can understand why people are coming back into the fray. You've had 12 months or more of suppressed demand."

Mortgage rates have been falling since 2011, when they hit an average high of 2.45pc in October of that year. Rates were averaging about 1.96pc in May, according to mReferral Mortgage Brokerage Services, a joint venture between Cheung Kong and Midland Holdings, Hong Kong's biggest listed realtor.

New and existing home sales in June reached 5,960 units, the highest since February of last year, according to government data. While the number of existing-home transactions hasn't recovered, the downward price pressure may be over, Jonas Kan, an analyst at Daiwa Securities Group said in a June 16 report.

"There have not been that many units asking for notably lower prices over the past 15 months, and many of them have been taken up in the past few weeks," Hong Kong-based Kan said.

The government in February 2013 doubled the sales tax on properties valued at more than HK$2m in its harshest measure yet to reel in prices and speculation. Prices almost quadrupled over the last decade, spurred by a shortage of apartments and an influx of Chinese from the mainland. They made up as much as a third of buyers in the city during the boom years and now account for about 12pc.

Hong Kong's existing home prices have bottomed after falling as much as 5pc from a peak in March 2013, Citigroup said in a June 6 report. New- home prices have dropped by 15pc to 20pc since October, according to a JPMorgan Chase & Co report last month. City Point is Cheung Kong's biggest project in Hong Kong in two years.

Located between an expressway and a harborfront, the apartments -- set for completion next year -- sell for about HK$9,000 to HK$14,000 per square foot, according to Cheung Kong.

The first batch of apartments that was released for sale, out of a total of 1,717 units, are more than 10pc cheaper than recent transactions at nearby developments, Cheung Kong Executive Director Justin Chiu told reporters in May. Buyers can get up to a 16pc discount, including a sales tax subsidy, the project's sales documents show.

Developers using discounts to drive volume doesn't indicate negative views about home prices, Cusson Leung, JPMorgan's head of property research, told reporters in Hong Kong today. The best strategy for them now, as the government pledges to increase housing supply, is to speed up sales and use the cash to replenish their land banks, Leung said.

"Transaction volume has picked up and take-up remains keen for new launches, so we expect developers should have room to gradually narrow discounts," said Alfred Lau, an analyst at Bocom International. He also upgraded the property sector to outperform.

The Hang Seng Property Index, which tracks the shares of Hong Kong's nine biggest developers, fell as much as 20pc and was down 5.6pc since the government's 2013 tax increase to yesterday. It declined 1.9pc to 29,445.20, compared with the 1.6pc decline in the benchmark Hang Seng Index.

The index rebounded after officials in May relaxed terms of refunding a double stamp duty introduced to discourage owning more than one home. Buyers have been given extra time to dispose of their existing dwelling after purchasing another one, the condition required for a refund.

Hong Kong developers, which sell new apartments in phases before completion, may put 15,000 units for sale this year, according to Centaline Property Agency Ltd., the city's biggest closely held realtor. That would be a 54pc increase from the 9,753 units released for sale last year, an 18-year low.

"Developers have, one after another, positioned themselves for launches, especially the larger projects," said Thomas Lam, the Hong Kong-based head of valuation and consultancy at Knight Frank.

The number of existing homes changing hands tumbled to 2,017 in February of last year, the lowest since the Land Registry began collecting data in 2002, and remained below 3,000 for eight consecutive months.

That compares with an average level of 7,000 to 8,000 units per month.

Prices of existing homes have risen 1.9pc so far this year, according to an index compiled by Centaline. The index may reach an all-time high in the third quarter as prices are expected to rebound 6pc from a low earlier this year.

In light of the recent pick-up, further price rises could trigger more policy tightening, Barclays say. Any additional curbs wouldn't be as hard-hitting as the existing stamp duties, though the government could impose more mortgage restrictions,

"The second-hand market is dry so it's very hard to rely on it as an accurate indicator," said Eva Lee, a Hong Kong- based analyst at UBS. "The price right now is not a real market price. The primary market is the one with movement, and if developers want to sell today, they have to price it 10pc below market."

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