Coronavirus, economic slump force mainland Chinese owners to dump their luxury Hong Kong properties at steep losses

By Iris Ouyang

/ https://www.scmp.com/business/money/wealth/article/3097714/coronavirus-economic-slump-force-mainland-chinese-owners-dump?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3097714 |

August 25, 2020 12:06 PM SGT

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Some heavily indebted mainland Chinese owners have been forced to sell their luxury apartments in Hong Kong at huge losses or discounts, as the economic slump at home takes a toll and a fresh wave of coronavirus makes them question the wisdom of holding on to the assets in the city.

At least 10 transactions - nine residential properties and one parking space - have incurred big losses, of up to HK$8.2 million (US$1.06 million), or been sold with steep discounts since the second half of July, according to agents.

"The economies in both mainland China and Hong Kong are so-so during the pandemic, causing some mainland buyers to sell their properties at lower prices and losses, because they need cash," said Derek Chan, head of research at Ricacorp Properties.

China's economy grew 3.2 per cent in the second quarter, making it the first major economy in the world to record some sort of recovery from Covid-19. But Chinese enterprises are bracing for sluggish external demand as many other countries are still embroiled in a prolonged pandemic, a problem exacerbated by the fraying US-China relations.

The retreat from the local property market has continued since early signs emerged in April, with several spots popular with mainland investors suffering bigger price declines. Mainland buyers have generally halted their purchases, according to some property agencies.

The discounts and losses of mainland Chinese homeowners reflected the general market situation in Hong Kong, said Sammy Po, chief executive of Midland Realty's residential division, as sellers in the secondary market are under pressure to cut prices for fast sales.

Mainland Chinese investors are selling Hong Kong property after China reports first GDP contraction in four decades

"Developers are willing to sell their properties," said Po. "Some offer new units with a price lower than the market price, and they are doing various promotions to attract buyers. So used-home sellers need to compete with developers" for buyers, he added.

In early August, a duplex at Positano residency in Discovery Bay sold for HK$21.5 million, HK$8.2 million less than the original price when the mainland Chinese owner bought it five years ago. If it were not for the fact the developer offered to pay the stamp duty for the homeowner, another HK$1.26 million in losses would have occurred, agents said.

Other properties that were sold at losses included a three-bedroom unit at Mantin Heights in Ho Man Tin, Kowloon, which recorded a loss of HK$2.32 million, and a unit at Kadoorie Lookout in Ho Man Tin with a loss of around HK$6 million.

A parking space at The Merton, a block of flats in Kennedy Town, recently went for a loss of HK$130,000.

Earlier this month, a third-floor unit at Fleur Pavilia in North Point was sold by creditors for HK$21.6 million, just three quarters of the HK$28.61 million that was paid less than three years ago. The mainland Chinese owner had been forced to abandon the luxury apartment when he failed to repay the mortgage, according to media reports.

Another mainlander sold a 482 square-foot unit at Harbour Green by Olympic subway station for HK$9.2 million, about 8 per cent lower than a similar unit in the same neighbourhood.

The city's real estate market has been mixed, with a bull run in newly completed property at odds with declining prices in the second-hand market. The number of overall property transactions in August may hit a four-month low of around 6,000, reflecting the impact of the third wave of coronavirus, according to Midland Realty.

Distress sales by mainlanders are likely to increase if the third wave of the pandemic in Hong Kong lingers and the economic recovery on the mainland loses steam, agents and analysts said.

"It will mainly depend on the domestic economy [in the mainland] - if the economy is doing well, people will not sell their properties in Hong Kong," Po said. He said many mainlanders had bought them for holiday use, so any extension of border restrictions would weigh on their willingness to hold on to them.

"The recurring virus outbreak and the political situation may push more luxury buyers to consider reallocating some of their real estate investments overseas, with luxury volumes in the second half of 2020 likely to fall back to previous lows," Savills said in a report in July.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

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