Hong Kong Sees Surge in Foreclosed Home Auctions Amid Property Market Slump
October 04, 2023
Auctions featuring seized homes have become more common in Hong Kong as the number of properties taken over by creditors rises. According to Hong Kong real estate agency Centaline Property Agency Ltd., foreclosed homes on sale in September increased by 36% compared to the previous year, reaching 271 properties in total. This surge represents the highest number of foreclosed homes on the market since 2009.
The increase in distressed sales is not limited to a single firm. CS Auctioneers Ltd. Reported a significant increase in foreclosed properties they handled, with the total reaching nearly 300 in September. Alger Cheng, the general manager of the firm’s auction department, commented on the trend, stating that banks are now open to price cuts to expedite sales. This move is prompted by the anticipation of a growing inventory of foreclosed homes due to the ongoing downward cycle in the market.
Consequently, these distressed properties can be purchased at prices up to 20% lower than the prevailing market rates.
Hong Kong’s property market experienced a prosperous two-decade bull run, which widened the wealth gap and led to the city being recognized as the least affordable housing market globally. However, since 2021, the market has witnessed a price slump due to various factors, including an exodus of residents, severe Covid-19 restriction, a weakening economy, and a significant increase in interest rates. Despite a brief recovery in the first half of this year, prices have fallen by 17% from the peak in 2021.
During the years of the property market boom, buyers were enticed by double-digit annual price increases. Many individuals heavily borrowed from banks to acquire properties. According to mReferral Mortgage Brokerage Services, mortgage applications with a load-to-value ratio exceeding 80% accounted for 36% of the total in 2022, a significant increase from the 14% recorded in 2019.
These borrowers now find themselves in a vulnerable position in the high interest-rate environment. Monthly mortgage payments have surged by 30% since March 2022 for those with a 30-year loan on a HK$5 million property, as reported by mReferral.
The downturn in the real estate market has added pressure on struggling homeowners, making it difficult for them to sell their assets quickly enough to cover their outstanding loans. Dick Ip, assistant vice president at Pan Asian Mortgage Advisory Co., highlights the challenge faced by homeowners, as falling property values hinder their ability to repay their debts.
The impact on the banking sector, however, has been minimal. The Hong Kong Monetary Authority reports a modest increase in residential mortgage loans subject to foreclosure or similar legal actions, with 282 cases at the end of June compared to the end of 2022. The delinquency ratio remained low at 0.07% by the end of June.
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