Hong Kong homeowners cutting prices drastically even as secondary property market continues to climb
An increasing number of homeowners in Hong Kong have been reducing their asking prices despite prices hitting a six-month high, indicating a weakening confidence in the market’s ability to sustain prices for longer. While the market remains on the upswing, buoyed by an improving economy following the reopening of the border with mainland China after the Covid-19 pandemic, there are signs of a potential slowdown, with some homeowners looking to avoid increased competition from developers who are launching new projects, according to analysts.
Homeowners have lowered the asking prices for 1,763 units, representing 7.9% of the total 22,352 units available for sale on the website of Ricacorp Properties, one of the major property agents in the city.
“Potential buyers may hesitate to enter the market due to price increases in the first three months of the year,” said Raymond Cheng, managing director of CGS-CIMB Securities. But it may not necessarily indicate a long-term downward trend in home prices, according to Cheng.
The Rating and Valuation Department’s home price index for March climbed 1.35% to 351.4, the highest since 360.3 in September. It was the third straight monthly increase, with gains in Hong Kong’s secondary market adding up to about 5% for the year. But the growth slowed compared with February, when the index gained 2.22%, the most in 33 months.
A homeowner at Casa Marina II in Tai Po sold their unit after reducing the asking price by HK$3.8 million ($650,000), or 17.4%, to HK$18 million, according to data provided by Midland Realty.
The agency’s Midland Confidence Index, which reflects the degree of confidence of owners who have put their homes for sale, has declined for two consecutive weeks.
As of May 1, the index fell by 2.7% week on week to 61, following a 3.7 per cent decline the previous week.
The index, which is calculated based on the price changes of properties for sale on the Midland website, represented a drop of 5% month on month.
When the index declines, it reflects more price cuts on properties for sale, indicating prices are likely to go down further.
The total number of properties changing hands, including residential, commercial and industrial units, as well as parking spaces, sank by a third to a three-month low of 5,735 in April, an estimate by Centaline Property Agency revealed on May 2. The total value sank 11.1% to HK$61.25 billion.
“It reflects the outbreak of the banking crisis in Europe and the United States during March, the volatility of the global financial market, and the interest rate discussion in the United States,” said Roen Yeung, senior associate director in the research department at Centaline. “The market tended to wait and see, which slowed down local property market transactions.”
Notably, the secondary market saw the number of deals nosedive 38.3% to a three-month low of 2,766 in April, according to Centaline’s estimate, as bargains became rarer and competition from new launches heated up.
Yeung expects the total number of transactions in May to fall again, this time by about 10% because of a lack of big new launches in April. The figure mainly reflects the market conditions in the previous month because of the time needed to register transactions to the Land Registry.
Buggle Lau, chief analyst at Midland Realty, predicted the number will sink 13% to about 5,000 in May.
Joseph Tsang, chairman of JLL’s Hong Kong office, predicted home prices in the city will change direction and eventually could fall more than 5% for the whole of 2023, citing challenging economic fundamentals and global geopolitical tensions.
“I expect residential prices to trend downward as transaction momentum turns slower due to pent-up demand being digested,” said Tsang. “Even if the interest rate peaks, the current level of more than 5% can negatively affect the willingness to invest in the property market. And the global and China economies remain surrounded by geopolitical tensions.”
In addition, developers have an abundant supply of unsold units, which may force them to undercut one another and speed up sales, said Tsang.
Private housing supply in Hong Kong is likely to hit 107,000 units in the next three to four years, according to an update provided by the Housing Bureau on April 28.
However, Cheng of CGS-CIMB expects home price to rise by an average of 5% as interest rates are likely to peak this year. He also expects housing demand and prices to sustain amid an improving economy in Hong Kong and increased cross-border travel.
His views were echoed by Derek Chan, the head of research at Ricacorp Properties, who said the Top Talent Pass Scheme could provide a new source of demand for homes as more people move to Hong Kong.