Hong Kong property: discounted Mid-Levels luxury homes entice buyers amid loan distress as rates outlook improves

Hong Kong’s deep-pocketed investors and homebuyers have been snapping up foreclosed luxury homes at great bargains in recent transactions, suggesting an increase in appetite as the global interest-rate hike cycle comes to an end.

A 1,301-square foot unit at Azura on 2A Seymour Road changed hands at HK$37 million (US$4.73 million) last week, according to people familiar with the matter. The property was valued at HK$45 million. A three-bedrooms unit at Alassio on 100 Caine Road was sold for HK$34.8 million, or about 20 per cent below its asking price.

Both properties are located at Mid-Levels West and developed by Swire Properties.

Foreclosed properties, those seized by banks due to missed mortgage repayments, have added to active transactions of luxury homes in recent months, said Peter Au, managing director at AA Property Auctioneers. A multi-year stock market slump and higher interest rates are the likely source of financial distress.

“Veteran investors in the property market are quick to act, and those who are cash-rich will come out to buy now, but the bargains have to be big,” he said. “There are more enquiries for these properties after the recent easing measures and the view that the rate-hike cycle has peaked.”

The Hong Kong Monetary Authority has lifted its base rate by 525 basis points in total since March 2022 in lockstep with the hikes by the Federal Reserve, while the city’s commercial banks raised their prime rate five times by a total of 87.5 basis points. An unprecedented slide in the Hang Seng Index has erased about US$2 trillion of equity wealth since early 2021.

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In another recent transaction, a 420-sq ft unit at The Arch in Tsim Sha Tsui was sold at HK$11.25 million last week, or 25 per cent below the asking price. The property, owned by former chairman of Goldin Financial Holdings Pan Sutong, was seized by lenders last year, according to a local media report.

Banks sell foreclosed properties according to valuations pegged to recent secondary-market home transactions, said Alger Cheng, general manager in the auction department at CS Auctioneers. That market has been lukewarm, he added, as transaction volume and prices have weakened.

Property transactions shrank last year to the lowest level in decades. Sales totalled 29,690 units worth a combined HK$251.2 billion last year, according to Centaline Properties. The number of deals fell by 6.6 per cent to a 28-year low, while value shrank by 11 per cent to a seven-year low.

While banks sell seized properties at a much lower price, they will not incur losses, according to Cheng. At best, they will recoup their loans and gain a small profit,” he added. Current low unemployment rate also indicates that homebuyers generally can still afford to repay their loans.

“More end-users are looking for foreclosed mass residential properties, as valuations of these properties have been discounted by almost 30 per cent during the past three months,” he said. “[Properties] from some popular housing estates can be sold quickly as the supply is limited.”