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HONG KONG (April 23): Many Hong Kong homebuyers are blinded to overpriced flats in new developments by the lure of grand clubhouse facilities, landscaped gardens, and luxury appliances, agents warn.
The consequences of paying a high premium for flats in such overpriced projects could be particularly dire in remote districts or single-block developments, they say.
A lesson may be learned from the downward spiral in prices at a number of developments in outlying areas, and one such example is what happened to prices at Sun Hung Kai Properties's Valais project in Sheung Shui.
Transaction information from the Land Registry shows the developer sold a 2,531 sq ft house at Valais for about HK$21.01 million (RM8.29 million), or HK$8,300 per sq ft, in October 2010. Two years later, it sold for HK$19 million, or HK$7,507 per sq ft.
The cost of rushing in and then cashing out was a HK$2 million loss before transaction fees.
Another example of the perils of paying over the odds because of the lure of "extras" was provided by Wuhu Residence, developed by Chuang's Consortium International. In September 2010 a 355 sq ft flat in the new development sold for HK$2.93 million, or HK$8,256 per sq ft. Last month the same flat sold for HK$2.88 million, or HK$8,113 per sq ft.
It's not just projects in remote locations that are affected; similar loss-making resales can be found in prime locations. A flat in Seymour, in Mid-Levels, developed by Wing Tai Properties, sold last month for HK$28 million, or HK$1,800 per sq ft — almost 7% less than the vendor paid when he bought it from the developer two years ago. After transaction fees and commissions the vendor lost more than HK$4 million.
"Home seekers should beware of new projects with selling prices that are much higher than prices fetched in nearby young estates," a property agent said. "If the selling price is 20% or more than prices in two- to three-year-old estates in the same district, there will be a high risk of depreciation."
Villa projects like Valais also have a higher investment risk.
"There is insufficient comparative price information for villa projects and the developers' selling price may not be in line with the acceptable resale price in the market," the agent said.
"For example, at the same time that the developer was selling units in Valais for HK$8,300 to HK$10,000 per sq ft, Casas Domingo, built in 1995, in the same area was selling for HK$3,000 to HK$4,000 per sq ft only. There were no special factors justifying the premium being asked for [villas] at Valais, and home seekers should take care to avoid these kinds of situations."
Single-block projects should also be approached with caution, the agent said.
"Sales responses for newly launched single-block projects may be good. But owners may later find it difficult to resell their flats in the secondary market.
"Also, the resale value would greatly depend on the first transaction of the project in the secondary market. If the first deal is done at a loss, it will be difficult for subsequent sellers to achieve higher sales prices."
Eddie Hui Chi-man, professor in the department of building and real estate at Hong Kong Polytechnic University, said the investment risk for buyers would be higher if there was a plentiful supply of housing in the district, as is the case in Yuen Long and Tseung Kwan O.
"If there is a downturn in the economy, prices of flats in those districts would drop more sharply," he said. "And if more than 80% of the buyers were investors, they would face a higher investment risk.
"Investors will not hold properties for the long term if the economy or property market shows signs of getting worse. They would rather sell their flats immediately to cut their losses — and then the price of your flat will be under downward pressure."
Hu warned that property prices had recently climbed to high levels and were now also subject to special stamp duties on quick sales. "The upside potential of property prices is therefore limited at the moment. I don't think the sharp increase in property prices over the last few years will be repeated in the short term." — SCMP
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