In stark contrast to the buoyancy at the start of the year, Hong Kong's red-hot residential market draws to a close with extreme caution as sales slump and prices fall.
The decline in sales comes amid growing concerns about policy risks, availability of credit and mortgage rate hikes.
The punitive special stamp duty of up to 15 per cent on homes bought and resold within 24 months, and the stiffer mortgage lending rules, especially for homes worth more than HK$6 million, have combined to put the brake on the runaway market.
In the first six months, home purchase sentiment remained relatively strong and prices continued to surge despite the government's repeated pledge to impose cooling measures to alleviate the risks of a property bubble burst. According to the Centa-City Leading Index, average residential prices increased by more than 10 per cent in the first half and reached a record high around June and July. Compared with the 2008 trough, average home prices had nearly doubled, and in the luxury sector the price rally was even more stunning.
In the third quarter, growth began to ease. Prices fell in October, though the pace of their correction was confined to single-digit percentages in most properties, especially those in the city centre or on Hong Kong Island.
However, land auction results earlier in the year appeared to indicate an imminent market correction. At a government auction in June, a prime site on Borrett Road in the Mid-Levels was taken by Cheung Kong (Holdings) at a price of HK$11.65 billion, well below surveyors' expectations of up to HK$15.2 billion. In August, a huge luxury site at Kau To Sha in Sha Tin was sold to the first and only bidder - a consortium comprising Kerry Properties, Sino Land and Manhattan Group - in just five minutes at another government auction at the opening price of HK$5.5 billion, 16 per cent lower than the lowest market estimate. The bidding results reflected developers' increased caution.
What has caught some people by surprise is perhaps the sharp plunge in sales in the second half of the year. According to Land Registry records and statistics provided by Midland Realty, secondary residential sales volumes stayed in the region of about 7,000 to 10,000 transactions per month in the first half of the year. Activity slumped significantly in the second half to fewer than 5,000 deals a month, with volume contracting to 3,939 in October and 3,727 last month.
