Hong Kong’s realty industry is grappling with a double whammy, with Covid-19 travel restrictions and quarantines keeping out non-local buyers who traditionally prop up the high-end sector and the deterioration of ties between Beijing and Washington dampening market sentiment.
On Thursday, in a big-ticket transaction, several deluxe seaside villas belonging to the United States State Department were sold to a leading Hong Kong developer, further reinforcing the bearish outlook.
The US Consulate in Hong Kong confirmed the sale of six mansions in one of the city’s most salubrious and exclusive residential communities. The buildings were used as senior staff quarters and were sold to Hang Lung Properties for HK$2.56 billion (US$330 million) in a closed tender.
That is a 20% discount off the low end of the market valuation, according to realty consultancy CBRE, which processed the sale. Reports by local media noted the initial asking price was close to HK$10 billion.
The sale has made some observers wonder if the US government simply aimed to cash out of the tepid market as they dumped the detached country houses and the sizable plot at 37 Shouson Hill Road it had held since 1948.
Not long after Donald Trump’s administration’s decision to stop recognizing Hong Kong’s special trading status and autonomy and strip the city of its preferential treatment at the end of May, the State Department said it would sell the stately villas with sweeping vistas of the South China Sea and the nearby Repulse Bay.
There have also been reports about an emerging exodus of expats led by Americans as they end their leases and pack to leave, in anticipation of the city’s worsening business environment amid the power play between Washington and Beijing.
The US government is not the only stakeholder opting out of Hong Kong and selling their assets at a discount.
Centaline, one of the city’s largest realty agencies, also revealed a case in which a mainland Chinese buyer decided to lose his down payment of HK$7 million rather than proceed with a HK$70 million deal for a multistorey townhouse in the city.
The buyer reportedly could not enter Hong Kong to sign documents due to travel restrictions. Centaline said that in August alone it handled 47 transaction cancellations.
Realty consultancy Knight Frank also issued a warning in its latest report. While the city’s average home price is still way beyond the reach of the working class, the average rent is yet to retreat, leaving the swelling jobless ranks priced not only out of the home market but also the rental sector.
The company also said it remained to be seen if Hong Kong’s home prices would ultimately yield to the economic downturn, but transactions of luxurious homes may drop by at least 5% this year due to the dearth of mainland Chinese buyers.
The feeble demand had also forced local developers to put on hold the launch of their most expensive units.
Deep-pocketed mainland Chinese buyers used to snap up about one-third of the palatial houses in the exclusive Mid-Levels and Peak neighborhoods when those trophy assets became available on the market, said a Centaline sales agent. But amid the threat of Covid-19, these VIP clients could not enter the city or dared not to, and business was drying up.
There were less than 200 transactions of HK$20 million or more in each month during the first half of this year, a new low since 2016.
More medium-to-small sized homes pitched at mainland students, fresh graduates and job seekers were also sitting empty, now that university campuses have long fallen quiet with face-to-face instruction suspended and openings disappearing in the local job market.
The Hong Kong Monetary Authority, the territory’s de-facto central bank, has also issued guidelines to lenders to tighten their scrutiny of mortgage applicants, with stricter debt-servicing ratios and debt-to-income ratio requirements.
Centaline’s Property Index, a gauge of market sentiment, has been on a losing streak since July, from a high of 61.88 to 49.85, when Hong Kong was hit by a new wave of infections and when the falling-out between the US and China deepened.
“The significance of Hong Kong’s realty sector is, other than being a barometer of the city’s economy, is that it’s also a unique tracker of the business confidence of expats and the flow of wealth of mainland Chinese investors amid the pandemic and the US-China spat,” said Centaline founder Shih Wing-ching.
Shih said with the reality of a prolonged predicament sinking in, developers and landlords realize they can do little to lift themselves out of the doldrums with the pandemic set to continue and the geopolitical flux caused by the Beijing-Washington spat is far from over.