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The slump of land prices erodes property prices directly

Damon Ho

Near the end of this year, either the executives of the property firms or the property market's KOLs have begun to comment and analyze the yearly performance of the property market. Moreover, they also predict the property market development of the next year. In summary, most of them tend to be optimistic and forecast property prices will rise 5 to 10% in 2025. 

These industry insiders or company bosses, who represent individual group or public interests, are naturally positive about the property market. When all the related parties of property industry expressed confidence about the property market, a government land tender in Siu Lek Yuen was won by Chinachem Group with accommodation value of only HK$3,357 per square foot (psf.). When Its bidding price compared to a residential land tender in the same district won by Sun Hung Kai Properties three months ago, it fell 15% from HK$3,952 to 3,357 psf.

Under such circumstances, the government should reject the bidding price, but it accepted it with gratitude, indicating that the government had accepted the land price declining significantly. Indeed, it is evident that the government is more likely to accept the developer's ultra-low bidding price from now on.

The cost of the project won by Chinachem was less than HK$ $10,000 psf. Three years later, it will be profitable if its sales price is HK$12,000 psf or more. Therefore, the average transaction price of City One Shatin nearby is under pressure and has to be reduced 30% from HK$12,000 to $8,400 psf. Otherwise, it will be difficult to attract buyers to purchase this old housing estate's units. In fact, a three-bedroom unit of this estate had recently been sold. Its transaction price dropped to HK$8,700 psf, which is 27% lower than the average price of City One Shatin .

Furthermore, there was also a two-bedroom unit in Jubilee Garden nearby, which transaction price fell by 14% from an average price of HK$10,000 to 8,635 psf. Two plots of residential lands tender in Sha Tin District were sold for about HK$3,000 psf, which has obviously exacerbated the slump of property prices by adding accelerants.

Recently, a middle floor unit in China Merchants Building of Shun Tak Centre East Wing in Sheung Wan was sold. This unit was 3200 square feet, and was sold at HK$12,400 psf. The seller acquired this unit seven years ago. The new transaction price is 60% lower than the purchasing price, and 71% lower than the record high of HK$ 42,000 psf. As this transaction price is confirmed, half of the commercial building's investors will be insolvent, and the consequences are extremely serious.

The government has taken the lead in accepting the ultra-low bidding price at the end of this year, which will directly drag down the property price. Besides, the Northern Metropolis Scheme, which will provide a massive amount of land, adheres to the original plan to implement. In this situation, the sellers will be very passive in this weakening property market.

 

 
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1. HK riches are selling their villas 2024-11-02 16:53:38

Rich families in Hong Kong are selling their villas and mansions at deep discounts so they can pay off debt, exacerbating the city’s prolonged property slump.

About 40% of secondary property deals worth $50m in July were sold at a loss,” Cathie Chung, senior director of Research at JLL in Hong Kong told Hong Kong Business.

Declining collateral value that is prompting banks to call in loans, prolonged economic uncertainty, elevated interest rates, and cautious buyer sentiment are to blame, she added.

But this is not new, Chung said, noting that the market downturn for luxury properties started way back in 2022. “But in recent months, the market saw more motivated vendors softening the asking price to exit.”

2. HK Gov rejected US polices 2024-11-03 11:00:53

HKSAR said it rejected a US measure restricting investment in China, including the HKSAR, on semiconductors and microelectronics, quantum information technologies, and artificial intelligence systems.

The US Treasury Department recently finalised a new rule that bars US citizens and permanent residents as well as US-based firms from investing in China's tech sector including AI, semiconductors, and quantum computing.

In a statement, the HKSAR government expressed strong objection to the US for intentionally targeting China and the HKSAR using various excuses out of political interests, causing damage to normal trade and investment activities as well as severely undermining the principles of a free market and economic order.

3. Property sales soared in Oct 2024-11-05 11:56:07

The property segment saw higher sales in October, with 5,857 building units sold.

According to the Land Registry, the total sale in October 2024 was 52.4% higher than the September 2024 record and 99.4% higher than October 2023. 

Of those sold,  4,697 were residential units. The number of sold residential units was up 64.9%  from September and 121.2% YoY higher than October 2023.

As the number of sold residential units increased, the total consideration of residential units also improved in October, rising 78.9% MoM and 52.2% YoY to $37.3b.

4. Foreign currency reserve slipped to 421 b 2024-11-09 00:09:13

Foreign currency reserve assets slipped from US$422.8b in September to US$421.4b in October.

According to the Monetary Authority, the reserve assets represent over five times the currency in circulation or about 39% of Hong Kong dollar M3.

“There were no unsettled foreign exchange contracts in end-October and September 2024,” added the Monetary Authority.