Industry players see homebuyers forfeiting deposits to cut losses amid correction
Sandy Li and Yvonne Liu 24 September 2008
Hong Kong homebuyers who have yet to complete purchase contracts on flats that have plunged in value since they put down their deposits may be tempted to forfeit their down payments and walk away from the deals, veteran property investors and analysts warn.
“They may cut their losses if they can because this property consolidation will last for two years,” said Edwin Leong Siu-hung, managing director of developer Tai Hung Fai Enterprise.
Analysts also expect grade-A office prices in Admiralty would plunge by 44 per cent during this consolidation period.
“The current financial crisis is the worst I have ever seen - worse than the financial crisis of [1997-1998] and the Sars crisis in 2003,” said the chairman of Coda Properties, Richard Tong Kwan-ming. “Foreign investment funds are now offloading their properties before the market sinks further.”
Estate agents reported that asking prices on units up for sale had fallen sharply this week after the latest blows to market confidence from the failure of United States investment bank Lehman Brothers Holdings and the forced sale of Merrill Lynch and a sharp rise in domestic wholesale money market rates that could spill over into higher home financing costs.
The Hong Kong Monetary Authority was last week obliged to inject funds into the market after one-month interbank rates more than doubled to nearly 5 per cent as local credit conditions tightened.
“We have seen sellers drop their asking prices by 3 to 5 per cent this week to quit the market before things get worse,” said Fredy Wu Yat-fat, the chief executive at Hong Kong Property.
As such, speculators were likely to be first in the exit queue as funding costs rose and the values of their investment properties plunged, analysts said.
Mr Tong, who spent more than HK$260 million buying two commercial properties earlier this year, said he now feared that Hong Kong’s residential market would be trapped in a three-year correction while the mainland real estate market might take eight years to recover.
The New Territories and Tseung KwanO, where major residential projects were offered for pre-sale this year, would be worst hit, he said. “Investors who bought new units in these areas may be considering if they should cancel the deals if they are caught in financial difficulties.”
Mr Leong echoed these concerns. The firm had acquired several old buildings and development sites this year and its first joint-venture serviced apartment project with Shama was opened in Fortress Hill this year.
“End-users may proceed with uncompleted deals, but speculators could be tempted to cut and run,” he said, since prices could fall further.
“If you are not yet in the market and plan to buy a flat for your own use, you may pick up some bargains this time next year, or wait until rental yields reach 5 per cent,” Mr Leong said.
Veteran investor and property trader Tang Shing-bor, who owns car trading firm Success Group and is an active trader in retail shops, said now was not the right time to buy as prices had further to fall.
“If you bought a flat at the peak level for your own use and you can afford to hold, you could do so and wait for another up cycle in the property market. The property market will not always be in a down cycle,” he said.
“But you will be in great trouble if you bought the property for speculation with a high level of debt.”
Leland Sun, managing director of Pan Asian Mortgage, said with the present outlook for the market some homeowners could be better off quitting the market now - particularly if they were holding investment properties - and re-entering later.
“In the past, the Hong Kong property market has lagged events on the stock market by several months and most industry experts would probably agree that property prices could fall a further 25 per cent or more in the coming six to 12 months,” he said. Since reaching a historical high of 31,958 points in late October last year, the Hang Seng Index has see-sawed in volatile trading conditions and closed at 18,872 points yesterday.
Nicholas Brooke, chairman of Professional Property Services Group, said most investors and end-users were now adopting a wait-and-see attitude.
“It may not therefore be practical to contemplate sale until we see some resolution to the current financial market difficulties,” Mr Brooke said.
“Most analysts seem to consider that we are in a bumpy road for the next 12 to 18 months.”
They also forecast a bleak outlook for the grade-A office market.
Mr Tong predicted prices at No9 Queen’s Road Central would tumble 44 per cent to HK$10,000 per square foot from a high of HK$18,000 per square foot late last year, while Lippo Centre dropped 30 per cent to HK$9,000 per square foot from HK$13,000 per square foot last month.
Mr Leong believed merchant banks hit by the financial crisis would be forced to relocate to areas with lower rents, which would put downward pressure on grade-A office rental, and prices in Admiralty would fall at least 10 per cent.
But he said a correction in the retail leasing sector would not take place until the second half of next year as supply was limited in prime locations.
David Watt, chairman for North Asia at DTZ, said it was impossible to predict the full extent of the impact on the Hong Kong real estate occupational market.
“Only one thing is for sure, it won’t be positive,” he said.
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Bumpy Ride Ahead, Warn Experts
Industry players see homebuyers forfeiting deposits to cut losses amid correction
Sandy Li and Yvonne Liu
24 September 2008
Hong Kong homebuyers who have yet to complete purchase contracts on flats that have plunged in value since they put down their deposits may be tempted to forfeit their down payments and walk away from the deals, veteran property investors and analysts warn.
“They may cut their losses if they can because this property consolidation will last for two years,” said Edwin Leong Siu-hung, managing director of developer Tai Hung Fai Enterprise.
Analysts also expect grade-A office prices in Admiralty would plunge by 44 per cent during this consolidation period.
“The current financial crisis is the worst I have ever seen - worse than the financial crisis of [1997-1998] and the Sars crisis in 2003,” said the chairman of Coda Properties, Richard Tong Kwan-ming. “Foreign investment funds are now offloading their properties before the market sinks further.”
Estate agents reported that asking prices on units up for sale had fallen sharply this week after the latest blows to market confidence from the failure of United States investment bank Lehman Brothers Holdings and the forced sale of Merrill Lynch and a sharp rise in domestic wholesale money market rates that could spill over into higher home financing costs.
The Hong Kong Monetary Authority was last week obliged to inject funds into the market after one-month interbank rates more than doubled to nearly 5 per cent as local credit conditions tightened.
“We have seen sellers drop their asking prices by 3 to 5 per cent this week to quit the market before things get worse,” said Fredy Wu Yat-fat, the chief executive at Hong Kong Property.
As such, speculators were likely to be first in the exit queue as funding costs rose and the values of their investment properties plunged, analysts said.
Mr Tong, who spent more than HK$260 million buying two commercial properties earlier this year, said he now feared that Hong Kong’s residential market would be trapped in a three-year correction while the mainland real estate market might take eight years to recover.
The New Territories and Tseung KwanO, where major residential projects were offered for pre-sale this year, would be worst hit, he said. “Investors who bought new units in these areas may be considering if they should cancel the deals if they are caught in financial difficulties.”
Mr Leong echoed these concerns. The firm had acquired several old buildings and development sites this year and its first joint-venture serviced apartment project with Shama was opened in Fortress Hill this year.
“End-users may proceed with uncompleted deals, but speculators could be tempted to cut and run,” he said, since prices could fall further.
“If you are not yet in the market and plan to buy a flat for your own use, you may pick up some bargains this time next year, or wait until rental yields reach 5 per cent,” Mr Leong said.
Veteran investor and property trader Tang Shing-bor, who owns car trading firm Success Group and is an active trader in retail shops, said now was not the right time to buy as prices had further to fall.
“If you bought a flat at the peak level for your own use and you can afford to hold, you could do so and wait for another up cycle in the property market. The property market will not always be in a down cycle,” he said.
“But you will be in great trouble if you bought the property for speculation with a high level of debt.”
Leland Sun, managing director of Pan Asian Mortgage, said with the present outlook for the market some homeowners could be better off quitting the market now - particularly if they were holding investment properties - and re-entering later.
“In the past, the Hong Kong property market has lagged events on the stock market by several months and most industry experts would probably agree that property prices could fall a further 25 per cent or more in the coming six to 12 months,” he said. Since reaching a historical high of 31,958 points in late October last year, the Hang Seng Index has see-sawed in volatile trading conditions and closed at 18,872 points yesterday.
Nicholas Brooke, chairman of Professional Property Services Group, said most investors and end-users were now adopting a wait-and-see attitude.
“It may not therefore be practical to contemplate sale until we see some resolution to the current financial market difficulties,” Mr Brooke said.
“Most analysts seem to consider that we are in a bumpy road for the next 12 to 18 months.”
They also forecast a bleak outlook for the grade-A office market.
Mr Tong predicted prices at No9 Queen’s Road Central would tumble 44 per cent to HK$10,000 per square foot from a high of HK$18,000 per square foot late last year, while Lippo Centre dropped 30 per cent to HK$9,000 per square foot from HK$13,000 per square foot last month.
Mr Leong believed merchant banks hit by the financial crisis would be forced to relocate to areas with lower rents, which would put downward pressure on grade-A office rental, and prices in Admiralty would fall at least 10 per cent.
But he said a correction in the retail leasing sector would not take place until the second half of next year as supply was limited in prime locations.
David Watt, chairman for North Asia at DTZ, said it was impossible to predict the full extent of the impact on the Hong Kong real estate occupational market.
“Only one thing is for sure, it won’t be positive,” he said.
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