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Property News Weekly Digest
2019/2/11
〈Asian Post, February 10, 2019〉A plot of residential land in Tai Po fetched more bids than expected at a tender yesterday in a possible sign that Hong Kong's developers are becoming more optimistic about the flagging market.

The site at Pak Shek Kok received 10 bids when the tender closed at noon yesterday, beating Knight Frank's estimate of five to eight bids.

Those that submitted bids included Sun Hung Kai Properties, CK Asset Holdings, Henderson Land Development, Wheelock Properties, K Wah International, K&K Property, Far East Consortium, KWG Property and a joint venture between China Overseas Land & Investment and Sino Land, as well as a consortium comprising Asia Standard International Group, Lai Sun Development, Lifestyle International Holdings and CSI Properties.

The plot, the last one to go for tender in Pak Shek Kok, is valued at between HK$5.2 billion and HK$6.2 billion, or HK$5,500 to HK$6,500 per square foot, according to Knight Frank.

At a plot ratio of 2.68 times, the 354,136 sq ft site can be developed to provide a total gross floor area of almost a million sq ft, the size of about 12 football fields.

The tender comes after a hotel site in Kai Tak was withdrawn from tender last week because the prices offered by the nine bidders did not meet the Lands Department's reserve price.

Housing was seen as less risky than commercial development because of an overall shortage of residential supply and the longer time commercial projects required to become popular, said Tony Wan Wai-ming, general manager of sales and marketing at K Wah.

〈Asian Post, February 10, 2019〉Many Hong Kong people seem to think property prices will only go up. That's why as soon as there are reports of negative equity, alarm bells start ringing.

Well, if you are a speculator, it's very late in the game and you should panic. But if you just live in the flat you own and can afford your monthly mortgage repayment, there's nothing to worry about here.

There were 262 cases of negative equity, when a property is worth less than its mortgage loan, in the fourth quarter of last year. Some analysts warn that unless prices start to pick up, the numbers could reach 600 by the summer and 1,000 by year end, which would match the level reached in the second quarter of 2016.

But this is a market correction, which is perfectly healthy, rather than a collapse. Just to put things in perspective, the last time we hit rock bottom was in 2003, during the outbreak of severe acute respiratory syndrome, when negative equity peaked at 105,000 households.

But while it took almost a decade and a half for those families to dig themselves out of the hole, the vast majority - remarkably - held on to the mortgages and continued to make payments. Default rates were extraordinarily low, especially when compared with their American counterparts.

Even then, our property market collapse never threatened the banking system as a whole, unlike the subprime crisis in the United States, which triggered the global financial crisis more than a decade ago.

Hong Kong's bank bosses and regulators like to pat themselves on the back for their financial prudential management in times of crisis. That's true to an extent. But they should also acknowledge the fortitude of their clients, the mortgage holders, who continued to make their loan payments come hell or high water.

〈China Daily, February 7, 2019〉Sales of used homes at housing estates in Hong Kong gained momentum last week as owners offered greater discounts and investment banks predicted prices would hit a bottom in March.

The number of transactions at 50 major housing estates tracked by Ricacorp Properties stayed above 100 for the fourth consecutive week, reaching 138 in the week to February 3, a 40-week high.

"Owners are less aggressive with their asking prices. Prices are generally down 5 to 10 per cent from the peak," said David Chan, a director of Ricacorp. "Buyers know prices are lower so they are willing to go look for homes."

For instance, a flat measuring 336 sq ft at Golden Lion Garden sold for HK$4.7 million yesterday after the asking price was slashed by HK$490,000 in light of a correction in the market.

Chan warned it was too early to confirm an overall lasting improvement in market sentiment. The number is still down 8.6 per cent from the 151 transactions recorded last year.

The figure came after CLSA, Citibank and JPMorgan said home prices would rise up to 15 per cent between April and December amid high market liquidity and pent-up demand from people new to Hong Kong.

Their predictions followed a 9 per cent drop in the city's home prices from their peak in July, which pushed 262 homeowners into negative equity in the fourth quarter of last year.

It was the first time in two years some property values had dropped below the amount of outstanding mortgages, the Hong Kong Monetary Authority said last week..

〈The Standard, February 4 , 2019〉China is now grappling with an economic predicament. In order to stabilize the economy, Beijing launched a raft of stable economic policies in January that included a loose monetary policy and releasing large amounts of liquidity into the market.

The first sector to benefit from those policies will be the real estate industry. Home prices in 70 large and medium-sized cities rose to their highest levels in 17 months in December and it appears that the releasing of liquidity is the reason why the housing market is hot again,.

This in turn could lead to more and more mainland real estate developers embracing the rise of real estate shares despite the fact that old debt has not been repaid as they start owing new debt.

In fact, China has paid a high price in order to maintain high economic growth and releasing liquidity has become the principal method of achieving this, in recent years.

The 4 trillion yuan (HK$4.65 trillion) injected in 2009 to stimulate the economy still remains fresh in the minds of investors.

Many infrastructure projects were successively implemented, but a lack of effective projects have become a legacy of today's economic development.

Of course, there were a lot of opposite effects brought by a series of hoarding goods, while the mainland property market bubble grew more and more serious.

〈The Standard, February 4, 2019〉The Year of the Dog is concluding with the breaking news that negative equity is raising its ugly head again, following years of a property boom that has seen prices surging more than 300 percent since hitting a low during the 2003 SARS outbreak.

According to the Hong Kong Monetary Authority, a total of 262 cases of residential mortgages slipped into the negative in the fourth quarter, the first time it has reported such a deterioration since 2016.

The borrowers were mostly bank staff who were usually given a higher mortgage ratio by their employers, and those who joined the mortgage insurance program to obtain higher mortgages. Borrowers opting for higher leveraging are more vulnerable in a property correction.

Since the current round of corrections began in August, prices have fallen by some 10 percent - deep enough to make properties thus financed worth less than the outstanding balance of their loans.

The HKMA figures, however, were conservative. The actual number must be higher as the authority's survey excluded others involving extremely high-ratio mortgages - some of up to 100 percent financing - provided by developers, or expensive second mortgages offered by lending institutions outside HKMA jurisdiction.

By extending to buyers extraordinarily high mortgages, developers have transferred the risk of a correction to the buyers.
Although it wouldn't have a material impact on the affected owners as long as the loans are repaid on time, it is never a nice experience to see one's wealth shrink enough to eclipse the pride of being a homeowner.