Developers are holding off from launching new residential projects in Hong Kong amid a property slump in the Asian financial hub that has been exacerbated by the coronavirus outbreak, according to JLL.
The property consultancy said that developers added just 40 new flats to the available market stock during the month following Chinese New Year– a period which ended with the Lantern Festival on 24 February. That project launch volume is down almost 93 percent from the average of 530 homes made available for sale over the same period within the last three years, as buyer demand has weakened in the face of the health scare.
“The traditional seasonal sales recovery following Chinese New Year will likely be pushed back this year, as developers have opted to avoid launching new projects due to virus concerns,” said Henry Mok, JLL’s senior director of capital market in Hong Kong Kong.
Hong Kong Home Sales Plunge 75%
Sales data for January show the downturn already in full force, with buyers spending only HK$7.5 billion ($960 million) on new flats during the first month of the Western calendar year – just a quarter of the HK$28.4 billion developers reaped from sales during the during the same period last year.
Secondary sales fared only marginally better with buyers in the city forking out HK$24.5 billion in January on existing homes, compared with the HK$44.9 billion they spent in January last year.
Mok said that prospective buyers had taken a wait-and-see approach since the outbreak of COVID-19, indicating that home sales would remain subdued until the health scare subsides.
The pent-up demand, buying enthusiasm and sales velocity that traditionally mark the start of the year are all missing in 2020, according to JLL.
Increasing Pressure to Lower Prices
With COVID-19 denting confidence in a housing market already bruised from last year’s anti-government protests, JLL is predicting a decline in residential prices across the city of up to 15 percent this year.
The property consultancy said that the pressure on developers to lower prices could be deepened depending on the duration and severity of the coronavirus outbreak.
“Given the dour market outlook and abundant supply, developers may have to lower listed prices when the bulk of stock comes online for sale in the second half of this year,” said Nelson Wong, JLL’s head of research for Greater China and Hong Kong.
Dumping Properties as Values Slide
Against this backdrop of weakening buyer demand, homeowners have reportedly started to dump properties at bargain prices as they race to find buyers before the market falls further.
In January, a buyer reportedly sold a 1,588 square foot (148 square metre) home at Sun Hung Kai’s Valais development in the New Territories’ Sheung Shui area for HK$21.3 million, suffering a loss of HK$10 million, according to a report in The South China Morning Post.
In another deal transacted in mid-February, a buyer is said to have sold a 3,304 square foot home in the Regalia Bay luxury project in Stanley for HK$67 million, knocking HK$5 million off the initial asking price.
Falling to SARS Lows
With banks said to have cut home valuations by 3 percent since the outbreak of the virus, analysts have commented that the likelihood of more homeowners falling into negative equity is increasing, carrying with it the potential to trigger further property sales and push down values still further.
During the SARS crisis of 2003, 30 percent of Hong Kong’s homeowners were pushed into a situation where the market value of their homes was less than the outstanding balance of their mortgages, with residential capital values dropping by 12 percent, according to JLL.
Like SARS, the coronavirus is expected to have a strong but short-lived impact on the market, the property consultancy said.
“Meanwhile, the longer-term market outlook remains to be tied to domestic residential demand and supply dynamics, as well as broader economic conditions,” noted the authors of the report.