HK's hot market drops to freezing point

"The market temperature has dropped to freezing point," David Chan Tai-wai, a director at real estate agency Ricacorp Properties, said.

The Ricacorp survey of secondary market sales in major estates showed that only 173 flats changed hands between November 22 and 28, down 57 per cent on the 399 sales in the previous week and the lowest since February.

Analysts and agents said they expected the wait-and-see attitude evident among buyers to continue at least until after the Lunar New Year, and prices to fall by between 5 per cent and 10 per cent in the short term as deals dry up.

But low interest rates and limited new supply were likely to bolster the market once potential buyers had digested the news, they said.

"The government's `spicy' measures - such as the special stamp duty to curb speculation - have not only driven speculators out of the market, but seriously dampened end-user sentiment as well," Chan said.

In six of the 50 housing estates it monitors, no sales were recorded during the week, the agency said, and average selling prices of fell by 0.3 per cent from the previous week's average.

Transactions also contracted in the primary market. Just 13 homes were bought last weekend, a big drop from the 42 deals recorded over the previous weekend, according to Samsung Securities.

The drop in sales volumes and prices follows the government announcement that from November 20 it would levy an additional stamp duty of between 5 per cent and 15 per cent on residential flats resold within two years.

At the same time, the Hong Kong Monetary Authority also lowered the maximum loan-to-valuation ratios on properties worth HK$8 million or more, and property under company names.

Craig Shute, a senior managing director at property consultancy CB Richard Ellis, said the low transaction volume was due partly to landlords preferring to stay on the sidelines instead of rushing in to sell at a large discount.

"The low-interest-rate environment ensures that the holding cost of a piece of property will be much lower than the special stamp duty, making landlords less willing to dispose of their assets at a deep discount and thereby making the market less liquid," Shute said.

At the same time, end-users had adopted a wait-and-see attitude as they believed the new measures could increase the chances of prices falling, Shute said. More users would choose to rent instead. Home seeker Gary Cheuk Lim-wai is an example of that trend.

"I think the current prices are around 30 per cent higher than my ideal target," the engineer said.

Cheuk, 29, plans to marry his girlfriend at the end of next year and the couple have been checking properties at Amoy Gardens in Ngau Tak Kok.

Cheuk said he hoped to buy a flat of about 500 square feet, ideally with a price tag of about HK$1.5 million, or HK$3,300 per sq ft.

According to Ricacorp, two flats at Amoy Gardens sold at HK$4,529 per sq ft last week.

"I'm upbeat that prices will fall further later, because we see price drops in every economic cycle. It's just like what happened after 1997 when flat prices peaked and went down," Cheuk said.

He pointed out that home prices had climbed significantly since last year.

Citing market analysis that flat prices may drop only slightly in the near term before they begin increasing again, Cheuk said he and his fiancee would rent an apartment first.

"I will wait for a downturn and evaluate if the strategy is still applicable two years after we marry," he said.

Nicholas Brooke, chairman of Professional Property Services Group, expects the market to remain quiet until after the Lunar New Year, when he expects values to rise again given continued excess liquidity and low interest rates.

The new tax on speculation might dampen the market in the short term, he said, but some investors at the top end of the market were still looking for a safe haven in which to invest and had no intention of "flipping" flats - selling soon after they buy - or speculating.

"[It's] not a bad time to try to buy over the next few months in that there should be the opportunity to bargain and not be told that the price is non-negotiable," Brooke said.- SCMP