Stalemate in Hong Kong: Few Buyers, Few Sellers
Hong Kongers, who turned pessimistic about property early in 2008, now seem to be at something of a stalemate: Buyers are unwilling to commit unless they see a real steal, and sellers are unwilling to cut prices all that much.
There is reason for their reluctance. People here don't talk about the subprime crisis or the credit crunch. Across the territory, the current economic woes are dubbed the "financial tsunami," sweeping into Asia from the United States and Western Europe.
The term is redolent of the real tsunami that swept Asia at the end of 2004. But it also carries a reminder that Hong Kong has seen its share of crashes: the Asian financial crisis in 1997 and 1998, and the near-meltdown during SARS in 2003.
"The market is very quiet since the Lehman Brothers collapse," said Anita Fan, senior associate director in the investment department at the brokerage DTZ. "It is quiet, but I don't see the price has really dropped a lot."
Residential prices fell 19 percent in the six months through November, according to the most recent data from the Hong Kong University Real Estate Index Series, a drop that is mostly the result of a 10 percent correction in November. Yet there were heady price gains at the start of 2008, so the net result was a one-year decline of just 6.9 percent.
And there still were stories of eye- popping deals. A 3,300-square-foot house at Severn 8, a development on Victoria Peak that has set and reset records for property in Hong Kong, sold in October for 76 million Hong Kong dollars, or $9.8 million — 23,000 dollars, or $2,965, per square foot. A similar house sold at 55,830 dollars per square foot in June.
Severn 8, like most new developments, has attracted speculators. But prices are generally holding up, as shown by a flagship transaction in January. An 11,345- square-foot villa at 85 Repulse Bay Road sold for 445 million dollars, or around 39,000 dollars per square foot.
"There has been the odd distressed sale, but not as many as we expected," said Victoria Allan, managing director of the brokerage Habitat Property. "All the trades we're doing are 30 percent to 40 percent off the peak price. If we can't get down to that, the market will continue to stop."
Many owners are trying to ride the tsunami out. Thanks to the Hong Kong dollar's peg to its U.S. counterpart, mortgage rates are very low.
"In Hong Kong the market is quite volatile, so you maybe need to wait for two or three years, or at most five or six years, and you can get your money back," Fan said.
Hong Kong's banks clamped down on mortgage lending and slashed valuations late in 2008. But they have new mortgage sales quotas for 2009, agents say, and are being realistic about valuations.
The number of residential transactions in December was down 65 percent compared with that month in 2007. So property agents are feeling the real pain, unable to muster much interest in real estate, normally a topic of daily fascination and much speculation in this city of seven million.
They won't find many optimists. In Asia, only 3 percent of respondents to a DTZ survey said they were positive on real estate for the year ahead, while 70 percent were negative and 27 percent expected no change.
"Hardly anybody is optimistic about the outlook for 2009," said Alva To, the company's head of consultancy for North Asia. "Asia-Pacific people have got a good memory. We have been through three cycles."
Recent lending and leverage in Asia were not as feverish as in Europe and the United States. But people there are much more optimistic. Over all, the same study reported, 20 percent of West Europeans were positive about real estate in 2009, while only 40 percent were negative and another 40 percent expected no change. In North America, only 9 percent were optimistic and 39 percent expected further losses, but 52 percent expected no change.
"The reality is, things are much worse in the U.K. and the U.S. than they are here," said Mark Price, DTZ's head of business space for North Asia. "But this survey is based on sentiment and emotion. Perhaps people are more realistic here. In the U.K., anybody under 40 hasn't seen" a real market downturn.
"They are probably not aware of how bad it can get," he added.
There are signs of stirring in Hong Kong's slumbering market. Kerry Properties has sold all 24 apartments it released in the Belgravia, a 29-story building that the Hong Kong-based developer opened in 1989 but refurbished last year.
The apartments are large by Hong Kong standards — 2,390 square feet for a three-bedroom flat and 2,790 square feet for a four-bedroom. The building overlooks Repulse Bay's beach, on the south side of Hong Kong Island, which now rivals Victoria Peak for the most expensive property in Hong Kong.
Kerry has added Sub-Zero refrigerators, Miele wine coolers and ovens, and Poggenpohl kitchen cabinets. According to Colliers, the apartments sold at an average price of 13,803 dollars per square foot. That was the highest price for a primary- market sale at the turn of the year, but at the low end of the range of 13,000 dollars to 15,000 dollars that they were expected to command when the project was announced.
Belgravia's closest price rival among primary sales is The Sail at Victoria. The developer, Hongkong Land, has a good reputation but mainly in offices — it is landlord to large parts of the Central downtown district.
The Sail, due for completion at the end of 2009, sits in Kennedy Town at the western edge of Hong Kong Island's crowded north shore, with unobstructed views of Victoria Harbor — although the 33-story building is just down the road from a public mortuary.
The developer declined to comment on its sales strategy, but of the 20 apartments offered before the Jan. 26 Chinese New Year, 15 sold and, according to Colliers, the price was an average of 9,703 dollars per square foot. That's a little less than the going rate for 10- or 20-year-old apartments in the nearby low-rise neighborhood of Pok Fu Lam.
International Herald Tribune