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Hong Kong’s Home Sales Decline to Two-Year Low on Interest Rate Concerns

Hong Kong home sales fell to the lowest volume in more than two years in April as government curbs and rising mortgage rates sapped demand after a price surge since 2009.

The number of units that changed hands last month declined 37.6 percent from a year earlier to 7,635, according to a statement on the Land Registry website yesterday. That’s the lowest since March 2009, according to data compiled by Bloomberg. The value of transactions slid 26.8 percent from a year earlier to HK$39 billion ($5 billion), the biggest yearly drop since June 2010, according to the release.

Housing prices in the city, ranked the world’s most expensive place to buy a home by Savills Plc (SVS), have gained more than 55 percent in the past two years on record-low mortgage rates and an influx of buyers from China. The government in November increased property transaction taxes and pledged to boost land supply amid public protests that housing prices are becoming unaffordable and as the central bank warned about the risk of a “credit-fueled property bubble.”

“Sentiment has clearly been waning since February,” said Buggle Lau, chief analyst at Midland Holdings Ltd., Hong Kong’s biggest publicly traded realtor. “A slowdown is almost inevitable when there’s a combination of government curbs, mortgage rate hikes and unpredictable events,” including the earthquake and tsunami in Japan on March 11.

Stocks Drop

Hong Kong’s bank interest rates will rise on loan demand and capital outflows when the U.S. increases borrowing costs, Hong Kong Monetary Authority head Norman Chan said on April 28.

The Hang Seng Property Index, which tracks seven of the city’s biggest developers, fell 0.2 percent at the close in Hong Kong, its seventh straight day of decline. The index has lost 4.3 percent this year, compared with the 1 percent gain in the benchmark Hang Seng Index.

Sun Hung Kai Properties Ltd. (16), the world’s biggest developer by value, gained 0.1 percent to HK$120.40, reversing an earlier 0.8 percent retreat. Cheung Kong Holdings Ltd. (1), the builder controlled by Hong Kong richest man Li Ka-shing, dropped 0.6 percent to HK$118.90.

Some of the city’s biggest lenders, including Standard Chartered Plc and BOC Hong Kong (Holdings) Ltd., raised mortgage rates in April after the warning from the city’s de-facto central bank, which is prevented by Hong Kong’s currency peg to the dollar from raising interest rates.

‘Under Control’

Home prices in Hong Kong rose for a second consecutive week in the week ended April 24, extending a recovery from a three- week, 1.6 percent slide since mid-March when lenders started raising mortgage terms based on the Hong Kong Interbank Offered Rate, according to an index compiled by Centaline Property Agency Ltd. Prices have risen about 10 percent since November.

“The best time for the home market has passed,” said Eddie Hui, a professor at the real estate and building department at Hong Kong Polytechnic University. “At the same time I don’t think we’re at the brink of a crash. The government measures seem to have brought the market under control gradually.”

Transaction numbers will probably remain stable over the next few months as developers plan to sell more new homes after a brief halt in March, Midland’s Lau said. That will compensate for a further slowdown in existing-home transactions, he said.

No Price Drop

“We are not seeing a drop in prices,” said Lau. “There’s still plenty of buying power there and potential sellers aren’t rushing to sell.”

Hong Kong may auction as many as 52 plots of land this year, Financial Secretary John Tsang said in his Feb. 23 budget speech. The land could yield 16,000 units, almost 80 percent more than from land sold last year.

The government is selling a total of nine sites in the second quarter, generating 2,650 apartments, and is considering announcing its land sale schedule at the beginning of each quarter, Tsang said last month.

A group between Nan Fung Development Ltd. and Wing Tai Properties Ltd. on April 27 paid a higher-than-estimated HK$9,934 a square foot for a residential site in the Hung Hom district in the government’s first land auction in the year.

The government will sell three parcels, including one on Stubbs Road on Hong Kong Island, in its next auction on May 12.

To contact the reporter responsible for this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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