News / Economy

Hong Kong Luxury Home Buyers Line Up Amid Talk of Last Hurrah

A man descends on an escalator near private housing estates in Hong Kong, Oct. 31, 2013. Many home buyers have shrugged off recent forecasts of a drop of up to 50 percent in prices over the next 12 months and decided to take a bet.
A man descends on an escalator near private housing estates in Hong Kong, Oct. 31, 2013. Many home buyers have shrugged off recent forecasts of a drop of up to 50 percent in prices over the next 12 months and decided to take a bet.
Reuters
In a shopping mall in one of Hong Kong's prime retail districts, more than 100 people wait patiently to take a lift to the sales floors - not to buy luxury bags or clothes, but high-end apartments with price tags of up to $4.4 million.
 
Foster Lee, a 30-year-old banker, was among the lucky ones who won the chance to buy a unit after a ballot in which more than 1,600 people signed up for just 80 luxury units on offer.
 
“I was expecting home prices to fall four years ago and they keep increasing. It really hurts,” said Lee, who plans to buy one of the flats offered by New World Development and Wheelock & Company Ltd in the prime location near Kowloon West for his family.
 
Signs on the ground point to a clear pick-up in demand from local and Chinese buyers, thanks in part to steep discounts offered by developers to offset higher stamp duties imposed a year ago to cool prices that have jumped 120 percent since 2008.
 
The boom was fueled in large measure by the Federal Reserve's dollar printing campaign, or quantitative easing, to drag the U.S. economy out of the global financial crisis.
 
It became easy to borrow cheaply, and with Hong Kong's currency pegged to the U.S. dollar the effects of the policy were easily transmitted to the property market.
 
But now some analysts expect property prices to fall as the Fed is expected to start withdrawing its monetary stimulus some time during coming months.
 
Regardless, many home buyers, like Lee, have shrugged off recent forecasts of a drop of up to 50 percent in prices over the next 12 months and decided to take a chance.
 
“You see that people who earn less than you have caught up with you because they bought then. It's like a girl you liked got married,” Lee said.
 
Last weekend, long lines at one project prompted developer Hang Lung Properties to postpone pre-sales and change the first-come, first-serve rule to a ballot system, in which more than 400 buyers competed for just 80 units priced from HK$8 million to HK$15 million ($1.93 million).
 
Industry watchers said up to 30 percent of buyers at recent popular projects were mainland Chinese, whose presence in the new luxury home market had fallen to less than 12 percent from 43 percent after cooling steps in October last year.
 
Sweeteners Lure Buyers
 
“With stamp duty subsidies from developers, many Chinese buyers are attracted back to the market,” CLSA property analyst Nicole Wong said, referring to a 15 percent tax on foreign buyers that many believe was targeted at mainland Chinese.
 
“It's like there is no government tightening at all -  developers cancel it for the Chinese buyers,” she said.
 
A general view of luxury residential apartments The Arch at the reclaimed West Kowloon in Hong Kong, Oct. 25, 2013.A general view of luxury residential apartments The Arch at the reclaimed West Kowloon in Hong Kong, Oct. 25, 2013.
x
A general view of luxury residential apartments The Arch at the reclaimed West Kowloon in Hong Kong, Oct. 25, 2013.
A general view of luxury residential apartments The Arch at the reclaimed West Kowloon in Hong Kong, Oct. 25, 2013.
In another sign of strong demand, new home transactions rose to a six-month high in September, according to real estate company Centaline Property Agency.
 
Some analysts say the recent frenzy has also been spurred by people rushing in before an expected interest rate hike, which could lead to a collapse in Hong Kong's property market.
 
“They [buyers] are concerned that the banks will further tighten up credit,” said Jennifer Wong, tax partner at global accounting firm KPMG in Hong Kong. “This is one of the reasons they don't mind to pay a little bit more - they can secure the mortgage loan at a low interest.”
 
Almost everything hangs on when the Fed decides to taper, as a rise in U.S. interest rates would drive up borrowing costs in Hong Kong, where home prices have risen four percent over the past year on ultra-low interest rates, tight supply and abundant liquidity since cooling measures were imposed.
 
Reality Check

While the picture on the ground looks promising, analysts see property prices undergoing a sharp correction.
 
Deutsche Bank forecast last month that Hong Kong home prices could drop up to 50 percent in the next 12 months, while Barclays said the market will enter its first real downturn since 1998 with a 30 percent plunge by 2015.
 
“The developers created this 'wow factor'. They managed to draw out some people who wanted to buy and were looking for price cuts,” said Barclays property analyst Paul Louie, citing two recent projects that offered discounts of up to 40 percent.
 
“We are just seeing the beginning of the round of price cutting. There will be more to come,” he said. “The buyers will return to the sidelines and wait for better deals.”
 
The price difference between new launches and second-hand homes - an indicator of developers' profitability - dropped to its lowest since 2003 at 12 percent in the third quarter of 2013, according to real estate company Midland Realty.
 
Hang Lung Properties and New World Development declined to comment on whether they would continue to offer discounts.
 
Wong Leung Sing, research director at Centaline Property Agency believed the buyers, rather than the analysts, would be proven correct over the price trend.
 
“We can't find the factors that will lead the market to plunge,” Wong said. “Investors are still quite optimistic.”
 
More than 5,000 small-to-medium units will be released by developers such as Cheung Kong and Sino Land  in the first quarter of next year, pushing inventory of new homes to a ten-year high and posting what Wong called “a real test” to mass consumers' purchasing power.
 
“The day of reckoning will be decided by the middle class,” Wong said.
 
Calling the Bottom
 
Amid forecasts of a collapse in the property market and general gloom over the outlook for home prices, there are still some who say the worst is over.
 
“The government tightenings just pushed back the timing of the purchase for Chinese buyers,” said Patrick Chau, director of residential sales at property consultant Savills. “You can never suppress the demand from that market.”
 
Some developers are also upbeat, prompting them to start scaling back some of the incentives previously on offer.
 
The city's largest developer Sun Hung Kai Properties raised the price of the high-end project near Kowloon West by up to 10 percent after a strong market response - it received over 2,000 applications for a re-launch of 60 units.
 
With the city's healthy 54 percent loan-to-value ratio, the absence of an immediate interest rate hike, and strong purchasing power from end-users and investors, Chau expected home prices to rise a further five percent by the second quarter of 2014.
 
“Here, at the front line of the market, we don't see the correction that investment banks are talking about,” he said.

($1 = 7.7535 Hong Kong dollars)

You May Like

Disappointing Report on China's Economy Shakes Markets

In London and New York shares lost 3 percent, while Paris and Germany dropped around 2.4 percent More

DRC Tries Mega-Farms to Feed Population

Park at Boukanga Lonzo currently has 5,000 hectares under cultivation, crops stretching as far as eye can see, and is start of ambitious large-scale agriculture plan More

Video War, Drought Threaten Iraq's Marshlands

Areas are spawning ground for Gulf fisheries, a resting place for migrating wildfowl, source of livelihood for fishermen and herders who have called the marshes home for generations More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Nobel Prize Winner Malala Talks to VOAi
X
August 31, 2015 2:17 AM
Nobel Peace Prize winner Malala Yousafzai met with VOA's Deewa service in Washington Sunday to talk about women’s rights and unveil a trailer for her new documentary. VOA's Katherine Gypson has more.
Video

Video Nobel Prize Winner Malala Talks to VOA

Nobel Peace Prize winner Malala Yousafzai met with VOA's Deewa service in Washington Sunday to talk about women’s rights and unveil a trailer for her new documentary. VOA's Katherine Gypson has more.
Video

Video War, Drought Threaten Iraq's Marshlands

Iraq's southern wetlands are in crisis. These areas are the spawning ground for Gulf fisheries, a resting place for migrating wildfowl, and source of livelihood for fishermen and herders. Faith Lapidus has more.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Rebuilding New Orleans' Music Scene

Ten years after Hurricane Katrina inundated New Orleans, threatening to wash away its vibrant musical heritage along with its neighborhoods, the beat goes on. As Bronwyn Benito and Faith Lapidus report, a Musicians' Village is preserving the city's unique sound.
Video

Video In Russia, Auto Industry in Tailspin

Industry insiders say country relies too heavily on imports as inflation cuts too many consumers out of the market. Daniel Schearf has more from Moscow.
Video

Video Scientist Calls Use of Fetal Tissue in Medical Research Essential

An anti-abortion group responsible for secret recordings of workers at a women's health care organization claims the workers shown are offering baby parts for sale, a charge the organization strongly denies. While the selling of fetal tissue is against the law in the United States, abortion and the use of donated fetal tissue for medical research are both legal. VOA’s Julie Taboh reports.
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.

VOA Blogs

World Currencies

EUR
USD
0.8916
JPY
USD
121.32
GBP
USD
0.6487
CAD
USD
1.3252
INR
USD
66.401

Rates may not be current.