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Summer Cool

The government auction held on 11 May 2010 of a residential development site in Tung Chung on Lantau Island is the latest indication that Hong Kong’s property market is heading for a cold spell. Defying all predictions, the 282,017 square feet seaside land was sold for HK$3.42 billion or HK$2,378 per square foot of buildable floor space. This is five percent lower than the lowest price predictions, which ranged from HK$3.6 billion to HK$5 billion. The auction almost failed when no more than three bidders participated, and was only saved when the auctioneer coaxed the eventual winner, Nan Fung Group, into raising its bid to meet the reserve price.

The recent introduction of a series of measures aimed at restricting the flexibility of developers in selling new homes has taken its toll. Most of the measures are to enhance transparency in sales which require more disclosure of essential information. Some are concerned with the publishing time of the price list, the building’s brochure and transaction records, while others deal with property agent’s responsibilities. These efforts alone are not enough to take the heat out of the market.

It is the expectation that more measures will be launched in the government’s effort to dampen the price surge that has put things on hold, resulting in a quiet market. We have already seen buyers walk away from preliminary sales and purchase agreements, forfeiting their deposits. This is happening not only in the mass market but also in the high end sector. Some sellers are beginning to soften, allowing a wider margin for negotiation. Property agents have been finding it easier to talk to property owners and to canvass for listings. Owners who are adamant on a high sale price have switched to leasing their property, in the hope that sale prices will rebound in the not-too-distant future.

On the leasing front, it’s a completely different realty landscape. Landlords are busy showing their properties to potential tenants, and property agents are running around looking for “bargain” properties, which are becoming rare in the wake of the increased demand. The hiring spree of multinationals continues as the summer, a traditionally high season for leasing activities, is almost upon us. Landlords have been able to hike up rental prices due to competition among tenants. It doesn’t take an expert to know that luxury residential rentals are heading north; it’s just a matter of how much.

By K.S. Koh