Tag Archives: Hong Kong Real Estate

Hong Kong Condos Begin Underwater Journey As 20% Drop Results In Negative Equity

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Hong Kong homeowners who bought flats in the last several months have seen their value decline as much as 20% in a matter of recent weeks, according to HSBC, sending values into negative equity which had only left the region from the prior downturn that ended in early 2017, reports the South China Morning Post.

https://www.zerohedge.com/sites/default/files/inline-images/hong%20kong%20housing.jpg?itok=PCFgNQk5Hong Kong’s famously expensive property market has started to feel the strain lately from a fall in demand caused by rising interest rates, a struggling stock market and fears about the impact of the US-China trade war. Negative equity occurs when a home loan exceeds the market value of the property, and has not been seen in Hong Kong since early 2017. –SCMP

“Theoretically, buyers who obtained a mortgage of 90 per cent of the flat’s value will fall into negative equity once home prices have dropped more than 10 per cent,” said Chief Vice-President at mReferral Mortgage Brokerage Services, Sharmaine Lau.

The largest losses are likely to be flat owners who paid sky-high prices for tiny apartments in older tenements, according to industry watchers, who add that banks tend to become very conservative in valuing such properties when the real estate market takes a turn for the worse.

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“Lower valuations will first apply to flats that have less marketability. Banks’ valuations, which are supported by surveyors, are made in line with market conditions,” said Cushman and Wakefield head of valuation and advisory services for the Asia-Pacific region, Chiu Kam-kuen. 

Meanwhile, SCMP was able to find apartments at older housing developments which are now valued at HSBC far below their recent selling prices. 

A 234 square foot unit at 36-year-old Lee Bo Building in Tuen Mun, which was sold for HK$3.82 million on October 8, is now valued 20 per cent lower at HK$3.08 million. In North Point, a 128 square foot unit at 41-year-old Yalford Building, sold on August 29 for HK$3.1 million, is also valued a fifth lower now by the bank, at HK$2.48 million.

In Kowloon, a 210 square foot unit at 34-year-old Hong Fai Building in Cheung Sha Wan sold for HK$3.87 million on June 20 is already down about 13 per cent, according to HSBC, at HK$3.38 million.

The spectre of negative equity is only going to get worse, according to Louis Chan, Asia-Pacific vice-chairman and chief executive for residential sales at Centaline Property.

“More homeowners will fall into negative equity next year as flat prices may decline by 10 per cent,” he said. –SCMP

The precipitous drop may force companies such as the Hong Kong Mortgage Corporation (HKMC) to adjust their mortgage insurance program in light of market developments. 

Under the program, buyers of flats worth less than HK$4.5 million can get mortgage loans of up to 90 per cent of the unit’s value, capped at HK$3.6 million, while for flats priced between HK$4.5 million and HK$6 million the maximum loan-to-value ratio is 80 per cent, capped at HK$4.8 million.

In the first quarter of 2018, HKMC said 6,955 applicants secured HK$26.86 billion in home loans under the mortgage insurance program. In 2017, a total of HK$32.3 billion in mortgages were granted to 8,829 applicants, up from HK$24.6 billion of 7,145 successful in 2016. –SCMP

Negative equity reached its peak in Hong Kong in 2003 following an outbreak of Severe Acute Respiratory Syndrome (SARS) which sent already-teetering home values plummeting. According to the HKMA, over 105,000 households found themselves in negative equity at the time – all of which were above water as of the first quarter of last year.

Source: ZeroHedge

Watch As Hong Kong Real Estate Agents Brawl For A Client’s Business

While America, and more recently Canada, have both had their ups and downs with housing bubbles, nothing in the world compares to what is going on in Hong Kong, that mecca of overpriced real estate: overnight the Rating and Valuation Department announced that Hong Kong’s private home prices rose 1.7% in May, 15% higher from a year ago. This was the 19th consecutive record price, and a non-stop advance since April 2016.

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“Hong Kong’s home prices have smashed records every month this year and we do not see the increase ending any time soon,” said Derek Chan, head of research at Ricacorp Properties. “One record high after another is making people panic.”

The unprecedented surge in prices, means that Hong Kong has persistently been among the cities identified by UBS as being in a real estate bubble.

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It is also the world’s most unaffordable city: the same UBS report found that a skilled service worker would need to work 20 years to buy a 650-square-foot (60 square meter) apartment near the city center.

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This is because real incomes have virtually stagnated in Hong Kong for many years, with UBS noting that “housing is less affordable here than in any other city we considered, and the average living space per person amounts to only 14m2 (150 sqft).”

So if it is not rising median wealth, what is behind this torrid demand for HK real estate? According to UBS “the latest boom stemmed from strong investor demand, general positive sentiment and the “fear of missing out” on capital gains. This is reflected as well in a frozen secondary market in which people hold on to their properties, expecting prices to rise further.”

In its latest attempt to moderate the housing bubble, on Thursday Hong Kong’s Executive Council approved several proposals, one of which includes introducing a vacancy tax on newly built flats that remain unsold, to cool down the overheating property market. Additionally, it is expected that Hong Kong’s flat-hoarding developers will face an annual vacancy tax amounting to double a property’s annual rental income.

However, according to analysts and agents the policy is not a long-term fix to the city’s housing crisis and urged the government to boost land supply.

“The extra supply of 9,000 [vacant] flats is even less than one third of the annual housing supply expected to offer by developers,” said Vincent Cheung, deputy managing director for Asia valuation and advisory services at Colliers International. “It would only work together with other mid- to long-term policies, such as reducing land premium and increasing the ratio of public land supply to private land supply.”

Until a solution is found, amid this “frozen” bubble of a housing market where normal buyers and Chinese oligarch sellers can rarely if ever that scenes such as the following are a common occurrence: watch as Hong Kong real estate agents literally throw punches, kick each other to the ground and otherwise pull their best kung fu moves as they brawl with one another to get a client’s business.

Source: ZeroHedge