Hong Kong Builders Veil Their Discounts
No one wants to kick off a decline in property values “Developers are very keen to sell but don’t want to cut prices”
Kowloon Development is offering a raft of rebates and hidden discounts that can reduce the cost of an apartment at its Upper East project in Hong Kong’s Hung Hom area by as much as 14 percent—and the company will help provide financing, too. The enticements are paying off. Since its Sept. 5 launch, the project has sold 940 of 1,008 units. One buyer even bought two apartments, one on the sixth floor and one on the eighth, according to transaction data published on the company’s website.
Cheung Kong Property Holdings and Henderson Land Development are among other Hong Kong developers offering inducements including tax rebates and first and second mortgages to keep buyers coming. So far, that’s allowed them to avoid the outright price cuts they’re concerned could end the steady gains that made the city the world’s least affordable major housing market. “Developers are very keen to sell but don’t want to cut prices,” says Yu Kam-Hung, senior managing director for investment properties at CBRE Group in Hong Kong.
Their efforts may not succeed in holding off a downturn. Investment company Bocom International Holdings sees house prices dropping
as much as 20 percent in the next three to six months, while property adviser Colliers International Group predicts a 15 percent slide next year.
Developers are rushing to sell homes in advance of an expected increase in the housing supply next year. They fear the slowdown in the market for existing homes will spill over into new-home sales. Mainland buyers, who’ve been stoking demand, have pulled back. Their share of property purchases in Hong Kong fell to 6 percent in the first six months of this year, down from 12 percent at the peak in 2011, according to data from Jones Lang LaSalle.
The last time Hong Kong saw such generous promotions was in 2003, when home prices were at the bottom of a six-year plunge, according to Nicole Wong, head of property research at investment firm CLSA. The decline in property prices at the time forced developers to write down the value of their projects and sell homes at a loss. No developer wants to raise the prospect of that happening again. “After 12 years of a bull market, Hong Kong property is at an inflection point,” says Spencer Leung, a strategist at UBS Group. “Property developers are trying hard not to paint a picture that things are going down.”
In the case of Kowloon Development, the rebates on the Upper East project helped reduce the price the buyer paid for the two flats to HK$6.9 million ($890,000) from more than HK$8 million. Across Victoria Harbor, at the upscale Cadogan tower in the Kennedy Town neighborhood on Hong Kong Island, Kowloon Development is offering similar sweeteners. In October, a 732-squarefoot apartment on the 31st floor, listed at HK$21 million, ended up costing the buyer HK$18.5 million, with the developer arranging first and second mortgages through its finance subsidiary covering as much as 90 percent of the price.
Supply is expected to increase by 70,000 to 80,000 new units within the next three to four years, according to CBRE’s Yu. “I do feel they’re going to cut prices, but they don’t want to do it overly aggressively,” says Leung, of UBS. “Nobody wants to spoil the party.” The bottom line With supply increasing, analysts see Hong Kong home prices falling as much as 20 percent in coming months.