Empty homes are forcing Hong Kong developers to cut unit prices
HONG Kong’s property developers are racing to sell homes with a tactic they have not had to use for years: deep discounts. Real estate companies are cutting new home prices, pummelled by a weak economy and rising interest rates. Buyer hesitancy is so strong that even deeply discounted foreclosure auctions attract few bidders. Data from Centaline show that 20,483 new properties were vacant in the third quarter – the most in nearly two decades.
Tycoon Li Ka-shing’s CK Asset Holdings was one of the first to bow to the new reality when it offered its Coast Line II project in the Yau Tong area at prices not seen since 2016. The strategy worked – the project was oversubscribed by over 30 times. The overwhelming response sends a clear message that discounts are inevitable.
Hong Kong’s residential market has long been among the least affordable in the world, bolstered by ultra-low borrowing costs and limited supply. Even after 2019’s political unrest and Covid lockdowns, developers could still command 10 per cent premiums on new buildings over nearby apartments.
Real estate firms are now pricing apartments 10 per cent to 20 per cent lower than the peak of a couple of years ago, said Roen Yeung, senior associate director at Centaline Property Agency’s research department. With buyers still cautious, Centaline expects new home transactions this year to drop to 11,000, the second lowest in almost a decade.
“Given that supply is high, developers are adopting a fast sales strategy,” said Patrick Wong, an analyst with Bloomberg Intelligence (BI). “When the funding cost is so high, there’s no benefit for them to hold the properties.”
“Some small and medium developers may have relatively high leverage so they need to raise cash to pay back banks,” said Mark Leung, an analyst at UBS Group. “So there can be more room for discounts, which would affect market sentiment.”
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When Road King Infrastructure and Shenzhen Investment started sales at their mass-market development in Tuen Mun area in September, the average price per square foot was 11 per cent lower than another project in the area introduced six months before. The two mid-size Chinese developers’ net debt-equity ratio stood at 61 per cent and 48 per cent, respectively, well above the risk ratio of Hong Kong’s larger firms; local giant Sun Hung Kai Properties’ ratio was 18 per cent in June.
Hong Kong’s real estate industry is waiting for the chief executive’s annual policy address on Oct 25, before deciding how to promote projects, said Wong from BI.
The government could announce cuts for property stamp duties, Sing Tao reported on Thursday.
The government recently hinted it may ease property curbs introduced in the early 2010s. Industry participants have been calling for the removal of certain property taxes, including a 30 per cent stamp duty on buyers who do not have permanent residency, and a 15 per cent levy on residents who already own a home.
Even if any policies are announced, Hong Kong developers still face challenging times. BLOOMBERG
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