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”

Bloomberg Businessweek (Europe) - - Markets/finance - −Fred­erik Bal­four and Lisa Pham

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.

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