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Hong Kong’s Property Market Is Tumbling as Unsold Homes Pile Up

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(Bloomberg) — More than 100 salespeople swarmed the floors of Hong Kong’s upscale shopping malls on a recent Saturday, calling shoppers to check out deals at one of the city’s newest residential projects. .

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One Innovare-Bellevue, built by Henderson Land Development Company, priced its first apartments 9% lower than nearby existing homes in the New Territories, about 25 miles from the Central Financial District. But since its launch last month, response has been below par, with about a third unsold as of the first week of October.

It’s even worse for others. At the end of the first day of sales, the development of 139 units he had not moved a single unit. This is unusual in a city where projects skyrocket within hours in a strong market. Another highly publicized project saw him only find two buyers throughout the day, according to sales records.

“We are fighting to lose customers because of interest rate concerns,” said Sam Wong, a real estate agent. “Everyone is competing to get it cheaper.”

The drop in demand suggests cities at the forefront of the global real estate slump are gearing up for a deeper recession in the coming months as interest rates rise. Rising borrowing costs are weighing on an economy already hit by political turmoil from population exodus, COVID-19 containment and tightening regulations in Beijing. Goldman Sachs Group Inc. sees home prices plunge 30% by 2023 from last year’s levels, while Jefferies Group LLC expects further declines after an 8% decline this year. The secondary market is nearing his five-year low.

Real estate remains at the heart of Hong Kong’s $368 billion economy. This is largely due to the wealth generated by the high valuations that are a result of Hong Kong’s scarce land resources. Seven of the ten richest local tycoons in the city had made their fortunes. Homeownership is a key indicator of success for Hong Kong residents who have considered it a safe bet after a 20-year bull market. Market declines can undermine that well-being and indirectly put pressure on spending.

Read more: Hong Kong warns bank rates could rise, increasing growth risks

The latest data from the Hong Kong Monetary Authority, which has raised benchmark interest rates five times this year, saw mortgages approved in July down 22.1% from June and down 3.9% month-on-month in August. . In particular, secondary market deal funding plummeted by 30.3% in July and another 11.1% in August.

A hawkish signal from the US Federal Reserve also means more rate hikes are likely in Hong Kong. The HKMA moves in step with the Fed as its local currency is pegged to the US dollar. Last month, the city’s banks, including HSBC Holdings Plc and Standard Chartered Plc, raised major lending rates for the first time since 2018. It also increased the mortgage price cap for Hibor-linked loans, which are used by 97% of Hong Kong homebuyers. tied up

Hong Kong’s economy could contract this year, with the city cutting its annual economic forecast twice and Treasury Secretary Paul Chan warning of a budget deficit twice the budget estimate.

Aries Kinmin Wong, an economics professor at Hong Kong Baptist University, said: “Higher interest rates typically lead to a contraction in economic activity, especially given that demand in Hong Kong has already weakened under the pandemic and containment measures. And even more so,” he said. “The recent wave of immigration has already put downward pressure on prices, which could have an even greater impact on the property market.”

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A shrinking urban workforce and less attractiveness to mainland buyers also exacerbate the problem. Stringent Covid quarantine requirements in force until recently have resulted in a brain drain, with official figures showing a record population decline.

Beijing’s tighter dominance is also robbing Hong Kong of its luster for wealthy mainlanders looking to hedge their assets. Instead, look to places like Singapore, Australia and California.

Wealthy Chinese are the biggest buyers of luxury condos in Singapore

Affordability hasn’t improved even though prices are dropping. In fact, with financial conditions tightening, apartments in the city tend to be the most inaccessible to buyers in his 24 years.

A 250-square-foot studio smaller than your average parking lot sells for over $500,000 in the rising middle-class Kai Tak neighborhood. With that kind of money, you can buy a unit near SoHo, New York.

“Everyone is feeling the market is going down. Interest rates keep going up and the local economy is not doing well,” said Greg Chan, 37, who has been looking to buy a home in Hong Kong for several years. rice field. “Now I feel less and less wanting to buy.”

Cheung added that unless home prices fall 15% to 30% from all-time highs, the current pricing justifies a purchase.

Hong Kong’s high proportion of workers in the financial industry makes the city more vulnerable to Wall Street job cuts. Giants such as Goldman Sachs and UBS Group AG have begun layoffs in the region, partly due to the economic slowdown in China that has hit deals.

Jason Hau, who works at Centaline Property Agency Ltd, said, “Sellers have to cut their prices multiple times before a buyer accepts the deal. Many sellers are disappointed. During the financial crisis of 2008, But it wasn’t that bad,” he said.

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