Prestigious Hong Kong Flats Stand Empty As Property Market Slumps
Hong Kong’s property market is in deep trouble, and prestige flats are going empty. This trend has led builders to make hearth sales to boost their income. For example, CK Asset Holdings, the company owned by billionaire Li Ka-shing, recently agreed to sell 152 new residential models for HK$21bn, or approximately $7,900 per square foot. One unit even broke Asia’s record price per sq ft.
CK Asset Holdings approves mass sale of 152 new housing units
The approval of 152 new housing units in Hong Kong provides CK Asset with a fresh development option for its flagship Tin Shui Wai development project. Once completed, the residential component could be worth more than HK$6.5 billion, according to estimates. CK Asset has been expanding its portfolio of residential projects, including the acquisition of a residential site in Kowloon in March. The developer is also planning to rezone a parcel of land in the East Fo Tan Industrial Area in the New Territories, where it plans to build a 3.15 million square-foot residential and retail complex.
The developer is offering discounted homes at a time when prices have dipped in the luxury housing market. The final sale of an apartment at 90 Repulse Bay Road is reportedly priced at HK$75,000 per square foot. That is significantly lower than the current luxury property market, which has seen housing values decline over the past few years. Despite the declining housing market, CK Asset’s Mid-Levels project is continuing to sell homes. A pair of buyers recently paid HK$393.9 million for the 21st floor of CK Asset’s Mid-Levels development.
Evergrande’s debt is hardly sustainable
Evergrande is currently facing bankruptcy, break-up, buyout, and government bailout. The Chinese government’s response is not clear at this time, but some analysts expect a partial restructuring of Evergrande’s liabilities, which would stabilize markets and limit the wider effect of the default. A partial restructuring would not necessarily help Evergrande in any way, but it would be better than nothing. Besides, basic economics dictate that a troubled debt situation can be resolved in local currency, so a partial restructuring would be preferable. That way, both lenders and borrowers would be less affected.
In China, Evergrande’s liabilities are largely domestic, consisting of loans from Chinese banks, deposits from prospective homebuyers, money invested in wealth management products, and supplier invoices. The remaining $20bn in debts is held in offshore bonds. Even so, the $20bn of debt represents a small proportion of the company’s overall liabilities. This is a result of poor management of the company’s activities.
Jiadengbao Real Estate accused of illegal fund-raising
Jiadengbao Real Estate has made headlines in China after a court ordered it to forfeit property worth 340 million yuan for illegal fund-raising. The company has not responded to Reuters’ request for comment. Its parent company is also facing court action over its illegal fundraising practices. In recent years, thousands of homebuyers have fallen into similar situations. Cash-strapped developers have failed to complete projects or have gone bankrupt.
The case focuses on a real estate developer that started selling apartments at a cost of 6,000 yuan per square meter a year before the building began. The apartments promised floor heating, communal swimming pools and other amenities. However, in June, the builder was forced to suspend construction because of allegations involving its parent company. In response, home buyers collectively disobeyed the builder.
Unaffordability
The housing market in Hong Kong is teetering on the brink of a new slump. Home prices fell 4.5% in the first seven months of 2018, while transaction volumes slumped 40 percent year on year. Most property agents believe prices have fallen even more in the first half of this year, with prices hitting the lowest levels since the third quarter of 2018. Many sellers are fleeing the city, forced to cash in on their properties to support their struggling businesses. And developers are responding by slashing prices, with some new projects now being sold at discounts of up to 20 percent.
The rise in prices in the first half of 2021 has slowed down, but is still higher than the year-ago peak. That’s despite the fact that Hong Kong is one of the world’s most expensive housing markets. Despite the high prices, the tax regime is competitive, and the city is a global business hub. The government can’t afford to see prices crash even further.
Lack of foreigner-friendliness
If you’re a New Yorker looking for an apartment in Hong Kong, be prepared to make an adjustment. While small studio and one-bedroom apartments are similar to those in the United States, larger ones tend to be very small. But despite their size, many of these apartments are still very comfortable.
Fortunately, the city offers a wide range of housing options for expatriates. Prices for apartments and houses in Hong Kong range from cramped accommodations to luxurious apartments with doormen. While actual houses are rare, most people end up living in apartment buildings. However, different neighborhoods offer different perks. Some are more expat-friendly than others, with Mid-Levels and Island MTR lines serving as the main expat neighbourhoods. Many expats prefer larger family homes.
