Hong Kong home prices seen as peaking out

HONG KONG: Lower than expected sales of apartments in Cheung Kong Festival City in Tai Wai have raised concerns that price gains in the primary market may be outstripping the budgets of homebuyers.

"It is a sign that prices are close to their peak," David Ng, head of regional property research at the Royal Bank of Scotland, said.

The continued strength of the secondary market, meanwhile, reinforces the view that buyers may be baulking at prices of new releases and adjusting their sights lower, Professor Eddie Hui Chi-man, of the department of building and real estate at Hong Kong Polytechnic University, said.

Secondary-market sales have hit a post-1997 peak, with research from estate agency Midland Realty showing that sales at Amoy Gardens in Kowloon Bay and City One Plaza in Sha Tin surged 73% and 48% to 325 and 496 deals, respectively, in 1Q, compared with 4Q2009.

Research from Ricacorp Properties, meanwhile, shows that secondary market sales soared 77% to 2,056 deals in March from 1,161 deals in February, lifting total quarterly sales to a record since 3Q1997.

The difference between the demand for primary and secondary units could suggest a growing resistance to the escalating prices of new apartments, Hui said. But while it signalled that prices might be peaking, it did not suggest an imminent fall in values.

As measured by the price index compiled by estate agency Centaline, secondary-market prices in 86 key housing estates rose 7.46% to 78.69 points in 1Q, the highest level in 12 years.

A 1,105 sq ft unit on an upper floor at South Horizons in Ap Lei Chau sold on the weekend for HK$10 million (RM4.13 million), or HK$9,050 psf. This is a record for a four-bedroom flat in the housing estate since 1998.

"Asking prices in new projects are even higher," Hui said. "It is common to see asking prices for units in new projects that are 30% to 50% higher than secondary-market properties.

"The sharp increase in sales in the secondary market is evidence that many home seekers are finding that new flats do not offer value for money and are shifting to the secondary market."

When Cheung Kong launched Festival City for sale on March 26, executive director Justin Chiu Kwok-hung said he expected the first-phase release of 1,360 units could sell out in three days and the average price of the project could reach more than HK$10,000 psf.

But only some 350 flats were sold in the first three days of the launch, and the developer lowered its asking price when releasing a second phase of units last week.

As an additional incentive to investors, Cheung Kong also made a financial plan available that required a buyer to make a down payment of 15% within 180 days of signing a preliminary purchase agreement, compared with the 20% previously required.

"The fact that the developer provided the new financial plan indicates that demand from end-users was weak," Michael Wu, a director at Fitch Ratings, said.

Ng of the Royal Bank of Scotland said the worse than expected outcome at Festival City was not due to Cheung Kong's sales strategy but a "change in the market mood".

While the sales did not conclusively point to a downturn in prices, they suggested that prices may be approaching their peak, he said.

"We will have to wait to see what happens at the launches of Sun Hung Kai Properties' Larvotto in Ap Lei Chau and Sino Land's Hermitage in West Kowloon before making a judgment," Ng said.

"But I will be disappointed if 30% to 40% of the units in the two projects are not sold in the first week and if sales could not be sustained in the second week."

Hui also believed that property prices were peaking and would rise a further 5% to 10% only.

Wu said that while homebuyers had begun resisting the premium on new projects, that did not mean the downturn had begun.