Steep discounts for Hong Kong's foreclosed homes may portend property price slump

Hong Kong

SOME Hong Kong foreclosed homes have been recently sold at steep discounts, adding to signs that the world's most expensive housing market could be heading for price declines both this year and next.

With the economy hit by anti-government protests and the Covid-19 pandemic, foreclosures in the Asian financial hub jumped 54 per cent in the first seven months of the year to 675, according to property auctioneer Century 21 Surveyors.

Both speculative investors and ordinary people are walking away from their mortgages, financing companies and auctioneers told Reuters.

Some warn foreclosures could surge next year to their highest levels since the global financial crisis.

Unlike Hong Kong's commercial property market which has seen a 30 per cent drop in building values in the past year, home prices have so far been relatively resilient due to strong demand, even edging up 1.8 per cent in the first half of this year.

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But two foreclosed properties belonging to a mainland Chinese investor recently sold at discounts of 25 per cent and 12 per cent to their respective purchase prices of around HK$30 million (S$5.3 million) and HK$20 million, according to a person with direct knowledge of the matter.

Henry Choi, a director at Century 21 Surveyors, also said his company has had three recent cases where banks put auctions on hold after deciding to go back to court to ask for a lower base price.

"The original valuations were too optimistic and they would be hard to sell now in this market," he said.

With demand far outstripping supply, prices for Hong Kong private homes have surged more than six times since 2003.

There has only been one year of annual decline in that period - a drop of 3.6 per cent in 2016.

Some analysts, however, expect current economic stresses will soon hit the market harder and predict a fall of roughly 5 per cent this year to be followed by a bigger drop next year.

Industry sources also note foreclosures last month were artificially low as courts have been processing cases very slowly for several weeks due to social distancing measures imposed after new outbreaks of the virus.

Mr Choi said he expects foreclosures to spike in the April-June quarter, noting a jump is almost certain due to the end in February of pandemic relief measures introduced by Hong Kong banks that allow home owners to pay only the interest and not the principal of their loans. He predicts there could be as many as 2,000 foreclosures for all of 2021.

That, however, would be lower than the more than 3,600 seen in 2009 in the wake of the global financial crisis, with the current market gaining some relief from monetary easing and low interest rates.

Anticipating lower prices ahead, lenders have also become super keen to offload properties as fast as possible.

"Normally, we would sell through property agents because transaction prices from auctions are too low, but now we want to get rid of the mess quickly so if agents cannot sell a property in two months, we put it up for auction," said the chairman of a finance company, who declined to be identified. REUTERS