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Hong Kong Real Estate Price Plunges 70% In Latest Government Land Sale

Tyler Durden's picture


Two weeks ago, in our latest report on the Hong Kong housing market, we observed that according to the local Centaline Property Agency total Hong Kong property transactions in January were on track to register the worst month since 1991, when it started compiling monthly figures. In other words, the biggest drop in recorded history.

Centaline estimated that only 3,000 transactions will have registered with developers slowing down new launches, while only 394 units were sold in the first 27 days of January, 80.3 per cent lower than the 2,127 deals lodged in December. Meanwhile, sales of used homes fell by a fifth to 1,276 deals in January.

But while the number of transactions was crashing, prices - while down 10% from the recent all time highs...


... have been relatively tame, as sellers have not been desperate enough to hit the collapsing bids, yet.

Yet one place that provides some glimpse into true price discovery was the just completed government tender, in which a parcel of land sold by the government in the New Territories went for nearly 70% less per square foot than a similar transaction in September.

In the deal that could not be postponed "because the seller waits for a better market", the 405,756 square foot (37,696 square meter) site in Tai Po sold for HK$2.13 billion ($274 million) or HK$1,904 per square foot, in a tender that closed on Feb. 12, according to the Hong Kong Lands Department website. According to Bloomberg, the buyer was Asia Metro Investment Ltd., a subsidiary of China Overseas Land & Investment Ltd.

As we have noted previously, the Hong Kong housing bubble has already suffered a "spectacular collapse", and all that is left now is confirmation not only in terms of transactions, but prices. We already had the former; now we have the latter.

Hong Kong home prices surged 370 percent from their 2003 trough through the September peak before the correction began, spurred by a rising supply of housing and a slowdown in China. As Bloomberg notes, lower prices paid for land could eventually lead to cheaper home prices down the road, and are viewed as a leading indicator of the negative sentiment on the market.

Making matters worse is that just like in the oil market, Hong Kong is now facing a spike in supply: "adding to the downward pressure on prices was the government on Jan. 13 raising its five-year target for new housing supply to 97,100 new homes, up from a previous estimate of 77,100 units."

It is unclear who will be the biggest victims of Hong Kong's housing bust: recent land sales have been dominated by mainland Chinese developers. Hong Kong property companies have been less active, as they’re struggling to sell existing units in their inventories and offering discounts of more than 12 percent to entice new buyers.

Yet stunningly, even the bursting of the Hong Kong housing bubble will not be fully clear as Chinese construction companies are merely using the HK real estate market as yet another way to circumvent Chinese capital controls and park their funds offshore: according to Nicole Wong, head of property research at CLSA Ltd. said mainland companies are outbidding their Hong Kong counterparts because they expect lower margins and are also anxious to park money offshore given the devaluation of the yuan.

One can imagine where HK real estate prices would be, if it weren't for the ingenuity of mainlanders to park hot money into one of the few remaining venues willing to accept it, and that hasn't been blocked by Beijing.

Still, local real estate experts remain "cautiously optimistic" even in the face of a property tsunami:

Wong cautioned against drawing conclusions on the basis of two land transactions, as it’s impossible to find two sites that are identical. She estimates land prices overall have fallen about 15 percent since their peak, based on the assumption that housing prices have fallen about 10 percent and land accounts for about 60 percent of overall development costs.

Ironically, it was Hong Kong Chief Executive Leung Chun Ying who introduced a raft of measures to cool the property market since 2012 after a rally in home prices fueled complaints of a widening wealth gap. Well, can now now undo those measures. Now that prices are finally starting to fall, property analysts including Raymond Ngai of Bank of America Corp.’s Merrill Lynch unit expect the government will ease the measures and pray to reflate the bubble once more.

However, one way to be absolutely certain that the housing crash will be far worse before all is said and done, comes courtesy of Standard & Poor's which just issued a report today projecting a 10% to 15% decline in property prices, and said that they would need to fall 30 percent before triggering a ratings downgrade on Hong Kong developers. With S&P's track record, a 50% collapse is now virtually assured.

The ultimate winner, however, from the bursting of the HK housing bubble are local residents, for whom housing may finally become affordable once again: Hong Kong ranked as the most expensive housing market among 87 major metropolitan regions, according to the annual Demographia International Housing Affordability Survey, which used data from the third quarter of 2015. The median home in Hong Kong costs 19 times the median annual pretax household income, the highest multiple Demographia has measured, and up from 17 in last year’s report, according to the company’s website.

Now if only the Chinese would stop buying up every piece of real estate in the US and Canada as well...

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Mon, 02/15/2016 - 20:17 | 7190085 fourZero
fourZero's picture

I seriously can't wait until the bubble pops here.  Will pick up another piece of property.

Mon, 02/15/2016 - 20:48 | 7190201 Man Who Was Thursday
Man Who Was Thursday's picture

That photo can't be fucking real

Mon, 02/15/2016 - 21:04 | 7190267 TradingIsLifeBrah
TradingIsLifeBrah's picture

Don't worry, pay the $270 million it will look just like the CGI image.  And I mean just like it, where there are no actual people living inside of it.  Then again sometimes the goal is the have no people inside the buildings in the first place http://www.nytimes.com/2011/10/31/nyregion/east-harlem-landlords-keep-ap...

Mon, 02/15/2016 - 21:11 | 7190286 BoingBoing
BoingBoing's picture

It's pretty goddamned ugly.

Imagine only getting some tiny chicken coop on the 23rd floor on a 30 year mortgage and 20% down...ugh.

Mon, 02/15/2016 - 21:25 | 7190332 Man Who Was Thursday
Man Who Was Thursday's picture

It's the stuff of nightmares. Looks like a surreal, colossal PRISON

Mon, 02/15/2016 - 21:42 | 7190384 oddjob
oddjob's picture

w/ granite countertops.

Tue, 02/16/2016 - 12:18 | 7192443 assistedliving
assistedliving's picture

that CHART can't be fukin real...but it is.  13 years up 370% now down 15%?  and?

Mon, 02/15/2016 - 21:13 | 7190295 johnconnor
johnconnor's picture

"it has never been a better time to buy a home in Hong Kong" - your friendly realtor

Mon, 02/15/2016 - 21:28 | 7190341 Handful of Dust
Handful of Dust's picture

As long as those Mainlanders were allowed to freely carry suitcases of cash to HK and buiy unlimited houses, everything was paradise. You'd more likely be stopped for smuggling a case of milk across the border then $250k in cash.


Now that Jingping is cracking down on corruption and customs agents are actually checking luggage for embezzled monies, HK houses prices will plummet ... oops, I mean correct. The good news is HK locals will have a chance to buy an affordable place relative to thier meager salaries.

We'll see a similar collapse in those other offshore money laundering locatiosn soon is my guess as Jingping negotiates these issues with foreign gubmints.

Mon, 02/15/2016 - 20:19 | 7190087 SILVERGEDDON

Ho Lee Fuk.


William Banzai will be thrilled - he can now buy a penthouse for 350 sq. ft. apartment money.

Mon, 02/15/2016 - 20:20 | 7190097 The Duke of New...
The Duke of New York A No.1's picture

Ya .... and during the same period, Vancouver real estate prices are up by aprox. 70%.

Mon, 02/15/2016 - 20:35 | 7190158 TradingTroll
TradingTroll's picture

2006 to 2016 Vancouver  prices more than doubled

Mon, 02/15/2016 - 21:30 | 7190244 Handful of Dust
Handful of Dust's picture

Ghost Buildings of Canada


Calgary’s soon-to-be tallest tower could come up short on tenants

“We don’t need as much space as we initially thought,” company spokesperson Rhona DelFrari said.

They have to be looking at the one million square feet and saying, ‘that’s the last thing we need

“What you do is try to negotiate out. Let’s say you sign a 15-year lease, you go to the landlord and say, ‘I’ll pay for five years but I’ll leave. If you get someone within five years, you make money.’

The company had laid off 1,500 people last year.

Calgary’s downtown vacancy rate jumped four per cent over the course of the fourth quarter and now sits at around 16.3 per cent, according to Avison Young.




>16% vacancy rate has to hurt.


Mon, 02/15/2016 - 21:34 | 7190354 general ambivalent
general ambivalent's picture

Lots of room for refugees. They'll figure out how to get that tar out of the ground right cheap.

Tue, 02/16/2016 - 05:12 | 7191188 old naughty
old naughty's picture

as east, so west...

as south, so north...

as above, so below...

what goes up must come down...

takes two to tango, so gainers-losers recycle, big fxxking deal, no?

Greed is still good?

Tue, 02/16/2016 - 00:16 | 7190841 Yen Cross
Yen Cross's picture

 usd/cad is trading the Milllennium handle.

Mon, 02/15/2016 - 20:37 | 7190162 SILVERGEDDON

That - is because all of the thieving bastards that robbed the country blind are desperate to bail out, and hide their money in Canada toot suite.

Invest a half million or so, and you all are an instant Canadian citizen.

Pray the overlords don't find the thievery and extradite.

The new M.O. for hot money from China, just like the Escape From Hong Kong, 1997 style.

Mon, 02/15/2016 - 20:21 | 7190100 steveharless
steveharless's picture

Just Glad Its Not Las Vegas down 70%


Mon, 02/15/2016 - 20:42 | 7190189 waterwitch
waterwitch's picture

What could possibly go wrong???

Mon, 02/15/2016 - 20:24 | 7190112 falak pema
falak pema's picture

I had a bamboo hut in Hong Kong... a bit like I had a farm in Africa.

Out of the great depression comes the great return to african living.


Mon, 02/15/2016 - 21:42 | 7190386 Wild Theories
Wild Theories's picture

you used to be a panda??

Mon, 02/15/2016 - 20:31 | 7190147 whatisthat
whatisthat's picture

This is a preview of bigger problems to come

Mon, 02/15/2016 - 20:59 | 7190249 CHoward
CHoward's picture

-70% and counting.  Ouch!

Mon, 02/15/2016 - 21:17 | 7190307 milanolarry
milanolarry's picture

The title is somewhat confusing. Real estate prices and government land sales are two different things. Real estate prices are decreasing, but certainly not as severe as 70%........yet.

Tue, 02/16/2016 - 05:17 | 7191191 nufio
nufio's picture

it seems confusion was the intent. We can certainly do without click-bait headlines in zh.

Tue, 02/16/2016 - 05:17 | 7191192 nufio
nufio's picture

it seems confusion was the intent. We can certainly do without click-bait headlines in zh.

Mon, 02/15/2016 - 22:09 | 7190462 RichardParker
RichardParker's picture

I guess this is not a good time to flip the "bed space apartment" that I bought last August with borrowed money.  The agent said prices could only go up.


Mon, 02/15/2016 - 23:19 | 7190687 fowlerja
fowlerja's picture

Is this a good time to borrow and buy on the Hong Kong housing dip?

Tue, 02/16/2016 - 05:55 | 7191213 Dr. Bonzo
Dr. Bonzo's picture

We have low interest rate environment at the moment. Here's the dirty little secret nobody's talking about: in Hong Kong, most mortgages are on adjustable rates. This market will get crushed if rates ever go back up.

Just be patient. This isn't over by a long shot.

Tue, 02/16/2016 - 02:06 | 7191019 Dr. Bonzo
Dr. Bonzo's picture

The ultimate winner, however, from the bursting of the HK housing bubble are local residents

Still waiting.

Tue, 02/16/2016 - 05:35 | 7191203 Panic Mode
Panic Mode's picture

Real estate price goes down ?? That is unheard of.

Anyway, who cares?? Mainland chinese investors are cash rich, they have plenty to cover their losses and probably still richer than most of us. 

Tue, 02/16/2016 - 12:54 | 7192557 strangewalk
strangewalk's picture

I rent a small studio apt in beautiful and clean San Diego that I pay $1000 per month for, something one third as big in an old building on the 35th floor in Hong Kong would cost at least three times that (I used to live there), yet average HK salaries are much lower than the US. On top of that, the quality of life in Hong Kong is zero--a super high stress, super crowded, super unfriendly and super expensive, sweltering mega shit-hole where giant cockroaches chase people (instead of the other way around), and with rats the size and disposition of pit bulls.  

Tue, 02/16/2016 - 13:31 | 7192784 szey
szey's picture

That's a land with legal issue and it's probably the developer cannot built it if the gov lose the case. 

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