Stock Market Crash Mauls Home Sales in Hong Kong

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China is celebrating. It’s showing off military hardware. Chinese markets are closed. Finally, folks around the world can focus for a few days on things other than China’s slowing economy and strong-arm methods to stops stocks from plunging further.

But there’s something happening in Hong Kong with a sense of foreboding for China and other places around the world: As stocks swooned, home sales in August plunged.

Hong Kong’s stocks got swept up by the China stock market bubble. In May 2014, the Hang Seng was at 22,000, made its way to 24,000 by March 2015, then soared 18% in six weeks, to 28,442 by April 28. Participants were getting richer by the minute. But then it dropped and now sits at 20,934, down 26% from its April peak, down 12% in August alone, and back where it had been for the first time in May 2007.

Mainland Chinese stocks fared worse, with the Shanghai Composite crashing 39%. Wealth has evaporated into the ether at a stunning speed, and all the fun has been leeched out of it. But it’s not just a game.

There are consequences. For example, the Mandatory Provident Fund that covers 2.5 million workers lost 5.6% in August alone, according to the South China Morning Post. And it also hit the housing market.

In August, home sales in Hong Kong plunged 27.8% from a year ago, to 3,896 units, according to the Land Registry. Total sales value dropped 30.3% to HK$31 billion ($4 billion).

But developers that cut prices and offered big incentives were able to unload their units.

Sun Hung Kai Properties, one of Hong Kong’s largest property groups, offered discounts of 11% for the apartments at phase two of its Century Link development in Tung Chung, according to the South China Morning Post. It also threw in a special incentive for investors: a cash rebate equivalent to 30 mortgage payments, but only on second mortgages, hence only for investors. To help investors overcome the banks’ mortgage ceiling of 60%, SHKP offered them an additional loan of 15% of the purchase price.

It was a sweet deal.

The pre-sale started at 9 a.m. on Thursday. Over 6,100 potential buyers had registered. By 6:20 p.m. the same day, it had sold all 328 units, “according to market sources.” Investors bought 40% of the units.

They weren’t exactly palaces, ranging in size from 378 to 645 sq. ft. But they weren’t cheap either, ranging in price, discounts included, from HK$3.82 million ($490,000) to HK$7.65 million (nearly $1 million).

Other sellers weren’t so lucky.

Far East Consortium International was able to offload only 58% of the 234 units at its Aspen Crest project in Diamond Hill when they went on sale last weekend.

“The investment sentiment wasn’t good in the past month,” Alvin Lam, a director at Midland Holdings, a real estate broker traded on the Hang Seng, told Bloomberg. “You can tell from the city’s falling retail rents, consumption, and retail sales.”

He’d helped the government organize an auction of 10 apartments. The auction took place on August 24, the day after Chinese stocks had their worst plunge since 2007, and only four apartments were sold.

“People have been much more cautious because the adjustment was huge this time,” he told Bloomberg. “This is a widespread change. The adjustment happened not only in Hong Kong or Greater China, but also in the US and other areas.”

But before Hong Kong? An 18-month plunge from hell. Read… Macau’s Economy Blows Up

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  9 comments for “Stock Market Crash Mauls Home Sales in Hong Kong

  1. interesting
    Sep 3, 2015 at 7:17 pm

    real-estate isn’t making any sense to me, everyone said after the fact that home prices were in a bubble in 2007 and now many areas are past that level but it’s not a bubble this time. And incomes have actually fallen since 2007.

    but what really pisses me off is the boomerang buyer is going to get another 48 months of mortgage free living (yes, i personally know someone who lived mortgage free for 48 months) when he stops making payments for buying a home they still really can’t afford.

    sometimes i feel like a sucker for following the rules and living within my means.

    • CrazyCooter
      Sep 3, 2015 at 10:21 pm

      The most important thing to do right now, above all, is to get the hell out of debt. I can’t stress this enough.

      As a small fish in the big pond, if you want to “trade” and have a shot at winning you have to figure out how to do what no one else is doing and coming out ahead in the process.

      Think about it and it is has merit; if you do what everyone else does, are you going to get a free ride?

      Right now people use a ruler (mentally) to project their future. Tomorrow will be like yesterday. It isn’t true.

      I don’t know what is coming, but all it takes is a change of law to bring back debtor prisons or god knows what else … you know … to save the banks.

      Think they give a crap about you?

      No one is out of debt. Everyone owes something. Want to trade and get something as small fry … get the hell out of debt. And stay mobile.

      Regards,

      Cooter

      • VegasBob
        Sep 4, 2015 at 12:14 am

        Absolutely! Debt of any kind is an albatross around one’s neck that makes people miserable. And most people in debt don’t even realize that their misery is due to having debts they cannot hope to quickly pay off.

        I pay cash for most stuff. Cash is anonymous and it puts a period on the end of a transaction. On the rare occasions when I use a credit card, I set up an online payment to pay off the card in full the day after the monthly statement is generated. I don’t give the bankers a chance to charge me one penny’s worth of interest or late fees.

        As for housing prices, I just sold my condo in the Portland, Oregon area for a nice profit. I’m renting now in Palm Springs, CA. Perhaps I’ll buy a property during the next downturn. Eventually, there will be an end to the current bubble and another downturn will once again take down lots of people who believe in the nonsensical “better living through borrowing” meme.

        • PSP
          Sep 4, 2015 at 11:30 am

          VegasBob:
          We also live & are renting in Palm Springs. Would like to buy here but the prices are very high!!! I new development will open this weekend but $569K to $699K for 1772 sqft? The sellers, developers & realtors in Palm Springs are nuts. The Canadians won’t save them this year, IMHO. I think we might continue to rent but those new homes are very tempting.

  2. rich black
    Sep 3, 2015 at 8:31 pm

    I don’t know what the situation was in Hong Kong, but in mainland China, folks were borrowing against their real estate to buy stocks. That can’t end well.

    In the US, this time around, there have been a lot more cash buyers and institutional buyers of real estate. One could only hope that that would put at least some kind of a floor under the RE market. Still, the negative psychological effect of a crashing stock market probably won’t inspire would-be retail home buyers to go out and spend money on much of anything, let alone big ticket items like a cars, houses and condos.

    • CrazyCooter
      Sep 4, 2015 at 9:03 am

      I have deep concerns about the depth of institutional investing in real estate.

      If real estate is packaged into legal units by area, someone with deep pockets can acquire big chunks real estate in an area through relatively few acquisitions. This could then bias where a company might choose to relocate a factory or office.

      Consider a company in CA who wants to move to TX and finds a town where 40% of RE in a 10 mile radius is owned by 5 institutional investment vehicles. As insiders, they could acquire this RE, move their factory to smack dab in the middle, and have something akin to a company town.

      That said, I don’t think we are anywhere near this level of concentration. However, when things go tits up next downturn, some of these holdings might start changing hands at prices that align with the thinking I just mentioned.

      Regards,

      Cooter

      • Petunia
        Sep 4, 2015 at 9:23 am

        Housing owned by institutional investors can look pretty on the outside but hide many problems that can cost a lot to fix. When you buy a portfolio of hundreds of houses, even in a nice zip code, you don’t know how many leaky roofs are in it. The only way to buy a portfolio of houses is to really underpay to be on the safe side. I would say 50% of the price of privately owned homes.

        • CrazyCooter
          Sep 4, 2015 at 10:25 pm

          But the point is you are consolidating ownership (with OPM) and after the crash prices will be vastly lower and it creates the situation I describe.

          Don’t forget that feudal Europe worked the way it did because no one owned property except nobility. If a path exists to consolidate ownership (via OPM) and then pick up the pieces cheap, this is where we will head. Pensions and such will eat the loss. Oligarchs will gain the RE at prices that make their business model/cash flow work.

          And they won’t care about the conditions so much … it will be a company town … don’t like it … then quit your cube farm/factory job and we will replace you.

          Regards,

          Cooter

  3. Petunia
    Sep 4, 2015 at 9:32 am

    To illustrate how ridiculous the real estate markets are, there was a posting on the Market-Ticker.com about a Canadian woman who was homeless because she couldn’t find a house in her price level, $1 million. This is crazy.

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