23rd June 2024 – (Hong Kong) Hong Kong’s housing market has been grappling with a series of challenges as the effects of the government’s cooling measures have all but disappeared. Even subsidised housing, which was previously in high demand, has seen a significant number of forfeited purchases. Kai Chuen Court, a development under the Green Form Subsidised Home Ownership Scheme (GSH) and touted as the government’s “trump card,” has recorded over 160 forfeited purchases to date. The latest batch of Home Ownership Scheme (HOS) flats has also seen at least eight forfeited purchases.

Although authorities emphasise that the re-launched units have found buyers and the new HOS flats have sold out, the current market sentiment is a far cry from the previous enthusiasm, with the saying “winning an HOS flat is better than winning the Mark Six lottery” no longer holding true.

Members of the Housing Authority have pointed out that while smaller GSH flats have typically been slower to sell, it is unusual for a single development to see over 100 forfeited purchases. This trend is likely related to factors such as high-interest rates, which directly impact the property market. However, the deeper reason for the declining popularity of subsidised housing is the overall weakness in Hong Kong’s property market, with even private property prices falling steadily.

In the face of an uncertain future, buyers are either losing confidence and preferring to forfeit their purchases rather than hastily entering the market, or they are opting for better-quality private flats as the price gap between private and subsidised housing narrows.

In fact, current property prices have fallen by 20-30% compared to the peak in 2021, and new developments launched this year are vying for buyers with low prices. Some new projects in the New Territories are offering flats for HK$4-5 million, blurring the lines between the public and private housing markets and naturally stealing the spotlight from HOS and GSH flats. Ultimately, people aim high and water flows downstream; given the choice, buyers will naturally opt for private flats.

Moreover, as market conditions deteriorate, even private housing sales have been lacklustre. A new development in Cheung Sha Wan launched 30 flats yesterday without recording a single transaction. As for some of the more popular new developments in the New Territories, the price per square foot for the latest batch is significantly lower than that of previous batches. With insufficient bank valuations and increasingly conservative mortgage approvals, many first-time buyers who purchased units last year are required to “top up their down payment.” Some have chosen to forfeit their purchases, leading to a wave of forfeited purchases even in the private housing market.

The Centa-City Leading Index (CCL), which reflects the property market, currently stands at 143.38 points, down 0.79% week-on-week and hitting a 14-week low. In the 14 weeks since the cooling measures were lifted, the CCL has seen six increases and eight decreases, with only a 0.25% difference needed to completely erase all gains made after the measures were removed. Property agents estimate that the index will fall below the pre-cooling measure low of 143.02 points by the end of June, with the CCL temporarily down 2.60% in the first half of 2024. The ineffectiveness of lifting the cooling measures reflects the government’s lack of tools to revive the property market. Some major banks pessimistically predict that Hong Kong property prices will fall by another 5% in the second half of the year, which may not be an exaggeration.

Every day, news reports are filled with stories of property owners slashing prices to sell their properties. Some secondary market property owners have cut their asking prices by 20-30% compared to their purchase prices, with extreme cases even seeing losses of over HK$10 million when offloading their properties. The myth of a property market that only rises and never falls has been shattered.

The wave of loss-making sales has also spread to commercial properties. For example, in Causeway Square on Sugar Street in Causeway Bay, a tiny shop changed hands for only HK$80,000, with its property value evaporating by a staggering 94% over the 19 years it was held, leaving people dumbfounded. As the rental market deteriorates, owners unwilling to sell at a loss have no choice but to leave their shops vacant. A surveying firm released a report late last year indicating that the average vacancy rate for commercial properties in Hong Kong’s core areas, such as Causeway Bay, Tsim Sha Tsui, Central, and Mong Kok, had reached 9%. Although the rate fell to 6% in the first quarter of this year, with the sluggish retail and dining markets, no one can guarantee that the second-quarter figures will not rise again.

Those with properties have perseverance, while those without properties lack it. Singapore understands this principle best, with homeownership rates reaching 90%, while Hong Kong’s rate is only 50%. Moreover, this 50% of people face the risk of a declining property market and negative equity. While excessively high property prices naturally lead to public discontent, a property market that only falls and never rises equally undermines public confidence. The Hong Kong government seems to be grappling with striking the right balance.