The global financial crisis is rapidly expanding into Hong Kong now. Window displays at some real estate agencies in the city advertise heavily reduced properties, last minute reductions and even cash incentives to prospective buyers.
Poon, a property agent for Midland Realty in Hong Kong said “Before September our branch was making two to three million Hong Kong dollars (256,000 to 385,000 US dollars) every month, but now it’s only around 50,000, a 98 percent drop in revenue”.
Over the next 6 months property prices are expected to decline even more. It is estimated they go down by 20-30 percent leaving many in a financial crisis.
Up until September around 10,000 to 12,000 units changed hands each month. By October however this figure dropped by a massive 50 percent. This left thousands of Realtors in the lurch and they were forced to shut their respective business’.
While this provides opportunities for cash flow backed investors, those seeking a loan might be in for some frustration because many financial institutions capped their applications due to their own cash flow problems.
This reminds us about the late 1990s when average home prices in Hong Kong fell by 70 percent. Industry watchers think that this time it won’t be as bad as back then, but only time will tell whether they are right or wrong.
The dangers of oversupply in the market aren’t looking as big either with 12,000 empty units in the sales pipeline while in the 90s it was over 80,000.
The hardest hit sector is expected in the luxury market. Units at the Residence Bel-Air, a popular high-end development in Pokfulam, are now being offered at a 40 per cent discount to their peak in the first quarter.
A house on popular Victoria Peak, which enjoys spectacular views across the harbor and is the island’s most prestigious address, is selling for less than half of its US$24 million price tag.
Photo credits: Mat Strange