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Sentiment in Hong Kong takes a turn for worse

HONG KONG: Lacklustre bidding at a government land auction for a Tung Chung site last week, and a slump in investor sentiment on the stock market have triggered a new round of consolidation in the property market.

With wary home seekers postponing buying plans, sales in the 50 housing estates monitored by estate agency Ricacorp Properties dropped 4% to a total of 274 deals last week -- the lowest level in three months and the fourth consecutive week of falling sales.

And signs are that prices are now also falling. The Centa-City Leading Index, a weekly index based on preliminary contract prices brokered by Centaline Property Agency, fell from a 12-year high of 80.68 in the last week of April to 79.86 for the week of May 3 to 9.

Ricacorp research, meanwhile, found that prices fell by an average of 1.3% from a week earlier, with the biggest falls recorded in Amoy Garden in Kowloon Bay, Ocean Shores in Tseung Kwan O, and Discovery Park in Tsuen Wan, where prices fell by between 6.4% and 8.1%.

The new round of consolidation in the market was on display at the recent government land auction in Tung Chung when only two developers -- Nan Fung Development and New World Development -- bid for the site that was eventually sold to Nan Fung for HK$3.42 billion (RM1.42 billion).

The land price translates into an accommodation value that is below ruling prices in estates in the vicinity and indicated that developers believed prices in the area had peaked, analysts said.

"The disappointing result has created a negative impact in the property market," said Eric Yuen, an analyst at Dao Heng Securities.

In Tseung Kwan O earlier this month sales had dropped by less than 10% after the government released measures to regulate the sales of new flats, according to Ken Lee Yuk-cheung, sales director at Centaline Property Agency.

But sales then proceeded to plunge by 30% month-on-month last week after the Tung Chung auction result.

"Home seekers are looking for a sharp cut in asking prices. But flat owners are willing to cut prices by an average of 2% only, which is not attractive to the buyers," Lee said. He expected sales to keep falling unless owners were willing to cut prices by 10% to 15%.

Home seekers have been hesitant to buy flats since earlier this month as they believed that prices had risen too high, said Wong Leung-sing, an associate director of research at Centaline Property Agency.

"The poor land auction result forced flat owners to cut their asking prices last week," he said.

The move helped shift properties in weekend sales monitored by Centaline in the top-10 housing estates, where 44 deals were done on Saturday (May 15) and Sunday (May 16) -- up 30% from the previous weekend.

That outcome showed that at the right price, demand for housing remained strong, Wong said.

Grace Liu, an executive who works in the customer service industry, was one of the buyers on Sunday. She bought a three-bedroom flat at City One Sha Tin for more than HK$2.6 million.

"I have wanted to buy a flat in Sha Tin for a long time. But the prices kept going up in recent years. Then prices finally dropped last week and I worried that I might miss the chance to buy if I didn't buy now," she said.

"If the price grows in the next few months I will sell to generate profit. It doesn't matter if the price falls. Then I can keep it for my own use."

Ricacorp Properties' director David Chan Tai-wai said an increase in sales recorded after flat owners had cut prices showed that buyers remained optimistic about the long-term market outlook.

But he believed flat owners would have to cut asking prices further to lure buyers as the slump in the stock market had yet to come to an end. Wong of Centaline said he expected prices would continue to fall unless transaction numbers rebounded to 60 to 70 deals for a weekend.

He believed most home seekers would take a wait-and-see attitude towards the property market in the coming month, while property prices were likely to drop a further 5% to 10%.

"But I can't forecast what will happen in the property market a month further out. The global economy remains uncertain and the government is reviewing the Home Ownership Scheme (HOS) policy," he said.

Eric Yuen of Dao Heng Securities ruled out a sharp fall in property prices.

"Mortgage rates will stay low as the US is unlikely to raise interest rates this year. The economy remains weak," he said.

He predicted property prices would drop by only 5% in the short term.

Chief Executive Donald Tsang Yam-kuen would give an account of the government's attitude to the resumption of building HOS flats in his policy address in October, Yuen said.

"I don't think the government will resume the development of HOS flats as by then prices will have dropped 5% already." – South China Morning Post

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