Hong Kong's Frenzied Home Buyers Just Can't Be Stopped

  • Prices keep climbing despite new 15% tax measure in November
  • Lack of secondary apartments for sale increases demand for new

Hong Kong Property Prices Rise Despite New Tax

To see the unintended consequences of the Hong Kong government’s efforts to tame property prices, take a look at the latest batch of newly built apartments to go on sale.

At least 800 bids for 105 new units flooded developers of a remote new housing complex, and nearly all of them sold out in a single day last week. Such sellout crowds are becoming the norm at new projects this year as distortions caused by government attempts to cool property prices have nearly halted the supply of older, existing homes for sale. That’s driving demand for new ones offered by developers.

High stamp duties targeted at all but first-time local buyers, the centerpiece of a government push to finally cool the world’s most unaffordable housing market, have prompted both would-be sellers and buyers of existing homes to hit the brakes. Instead, buyers have piled into new homes, or the primary market, where developers entice buyers with tax rebates and even loans.

The upshot: Since Chief Executive Leung Chun-ying announced the latest round of property tightening in early November, prices have kept climbing and demand for new homes has kept soaring.

“With the stamp duties and mortgage curbs, nobody can get financing in the secondary market, and nobody needs to sell,” said Justin Chiu, executive director at Cheung Kong Property Holdings Ltd. "That is creating demand for primary homes, and developers can adjust prices when they see that demand is as strong as it has been recently."

New home sales soared 48 percent in January over December, compared with a 76 percent decline in the same period last year, according to data from the government and residential property agency Midland Realty.

A batch of 188 units at China Overseas Land & Investment Ltd.’s new complex at Hong Kong’s old airport site, One Kai Tak, priced as much as 41 percent higher than a first lot five months ago, sold out in one day in mid-January. Even in the lackluster secondary market, home prices are up 1.7 percent since November, according to a Centaline Property Agency price index tracking Hong Kong’s residential properties. There is no index gauging new home prices.

A gauge of Hong Kong developers’ stocks has risen 12.3 percent this year, outpacing the 6.9 percent advance of the broader Hang Seng Index.

Developers have been gradually increasing their share of Hong Kong’s property sales in recent years. The proportion of total new home sales has climbed from 10 percent in 2010, before the government first began demand-curbing policies in 2012, to more than 30 percent last year, government statistics show.

That trend may accelerate as the latest measures add more costs for individuals to sell their properties and buy new ones, analysts say. The increase in stamp duties adds to restrictions such as the latest caps on mortgages the government introduced in February 2015. So homeowners who want to sell a property and then seek a mortgage for a new apartment now find mortgage financing limited to 50 percent, compared with as much as 70 percent previously.

‘Dried Up’

“Volume has dried up” in the secondary market, said Buggle Lau, chief analyst at Midland Holdings Ltd. “Homeowners think twice before selling, because if they want to buy again they face heavy stamp duties and mortgage caps.”

Despite a raft of measures introduced under Leung’s administration, prices of secondary homes have risen nearly 40 percent since he took office in July 2012 and are hovering just 0.7 percent short of their September 2015 record.

In a written response to questions, the government said the tax imposed in November will eventually work. 

“We believe that with the majority of short-term speculators and investors leaving the market in view of various demand-side management measures, the residential market will eventually become a healthier and more sustainable market for self-use homebuyers,” said Terry Wong, a principal government information officer.

Volumes Slump

Yet taxes increase transaction costs, affecting volumes, not prices, said Raymond Yeung, Australia & New Zealand Banking Group Ltd.’s chief economist for greater China. Transactions have fallen by more than half since the new tax, from 6,739 in November to 3,286 in January, according to government data.

Cheung Kong plans to offer discounts of as much as 30 percent of the purchase price to offset stamp duties on selected villas at its new Crescendo development, according to Chiu. Prices for the apartments, which go on sale later this month, range from HK$22 million ($2.8 million) to HK$37.6 million.

Government attempts to increase the housing supply by releasing more land for new construction have resulted in higher prices as mainland developers outbid local ones for government tenders, pushing up prices. Buyers have been watching the increases, said Denis Ma, head of Hong Kong research at Jones Lang LaSalle Inc.

"People feel more comfortable buying now because their expectations are that prices are going to be higher down the road," he said.

Pavilia Bay model

Source: New World Development Co. Ltd.

At the most-recent new home sale, on Feb. 3 at the Pavilia Bay development in the Tsuen Wan area of Hong Kong, 92 percent of the 105 units sold that day. Most were bought for between $HK4.6 million and $HK10 million, after discounts. The project has sold 98 percent of the 704 units released to the market so far this year, and most of the remaining 13 units are priced at more than HK$20 million.

The sale was the latest allotment offered this year at the Pavilia Bay, jointly developed by New World Development Co., China Vanke Co. and the MTR Corp., that will include almost 1,000 apartments in two towers overlooking the sea, a short walk from Hong Kong’s MTR subway station. Another batch of 114 apartments go on sale Friday.

"Quite a few clients were excited when they saw the price list of the project," said Ringo Choi, senior chief sales director at Ricacorp Properties Ltd. "The developers received thousands of subscriptions in the first round of offering, which was definitely a vote of confidence -- with real money -- in the primary market. "

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