Hong Kong’s glut of unsold flats could put more pressure on prices

Hong Kong home builders could face greater pressure to slash ­prices as the number of completed but unsold new flats they held increased at the end of last year.

Analysts said some home builders would offload stock by cutting prices by 5 per cent to 10 per cent from the current levels on completed unsold units, stepping up efforts to lower inventory as the government’s proposed vacancy tax looms.

The city’s developers held 3,295 unsold homes which were completed in 2017 and 2018 as of December, about 10 per cent higher than November’s figure, according to data from Centaline Property Agency.

The data is based on 93 projects offered for sale since 2016, according to Centaline.

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“The number of unsold homes could not drop amid the correction in the housing market in the second half of last year,” said Wong Leung-sing, senior associate director of research at Centaline. “Quite a number of completed homes unsold will need to be cleared this year if developers want to avoid paying the extra [vacancy] tax.”

Vacant units completed in 2017 and 2018 accounted for about 37 per cent of the 9,000 vacant flats in the city completed since 2011, according to government estimates.

In June, Chief Executive Carrie Lam Cheng Yuet-ngor proposed a vacancy tax on unsold homes that are not leased or remained unoccupied six months after receiving an occupation permit. The tax rate will be two times of rateable value, or 5 per cent of the home’s value.

Among homes to be completed between 2017 to 2020, as many as 11,109 have yet to be sold.

Completed but unsold units could see a further 5 per cent to 10 per cent decline, placing them on par with pre-owned homes in the same district as the market struggles to digest the surge in supply, said Leo Cheung, corporate ­development director of valuations and property management at Pruden Group.

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Home prices have dropped 9 per cent from July to December last year, according to Rating and Valuation Department.

Cheung said at one time new flats were selling for a 20 to 30 per cent premium over comparable used housing stock, although during some periods of market weakness the premium could drop to 10 per cent.

“But to avoid the holding cost incurred by the vacancy tax and depreciation, developers may offer flats at zero to 5 per cent of premium,” said Cheung.

Raymond Cheng, head of Hong Kong and China research and property at CGS-CIMB Securities, said some developers are preparing to cut prices by 5 to 8 per cent.

“That should be able to clear some of their inventory,” Cheng said.

Midland Realty forecast home prices will drop 10 per cent this year.

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