Hong Kong, one of the world’s most expensive real estate markets, is witnessing a surge in foreclosed homes as homeowners struggle to repay their mortgages amid high interest rates and a weak economy. However, even with discounts of up to 20%, these properties are finding few takers at auctions, reflecting the caution and pessimism that have gripped the market.
Foreclosed Homes Hit Record High Since 2009
According to Hong Kong real estate agency Centaline Property Agency Ltd., the number of foreclosed homes on sale in September increased 36% from a year ago to 271 — the most since 2009. Other firms are also seeing a spike in distressed sales. The number of foreclosed properties handled by C S Auctioneers Ltd. increased to almost 300 in September from about 100 at the beginning of the year, according to Alger Cheng, general manager of the firm’s auction department.
Banks are now open to price cuts in order to speed up sales, “knowing that the inventory of foreclosed homes will only increase given the down cycle,” Cheng said. Such properties can be 20% lower than the market price.
Buyers Remain Wary Despite Bargain Prices
However, despite the attractive discounts, buyers remain wary of bidding for these properties, fearing further price declines and uncertain economic prospects. At a recent auction featuring 24 properties, mostly foreclosed homes, only one was sold, with the rest passed in after failing to meet the minimum price or attracting no bids.
The auction was attended by about 20 people, mostly old women carrying grocery bags and middle-aged couples wearing t-shirts and sneakers. They were looking for a rare opportunity: The chance to buy a discounted home in a real estate market long known as one of the world’s most expensive.
But their caution was evident as they inspected the properties on offer, which ranged from tiny apartments to luxury villas. Some expressed concerns about the quality and maintenance of the foreclosed homes, while others said they were waiting for prices to drop further.
High Interest Rates and Weak Economy Squeeze Homeowners
The rise in foreclosed homes is partly due to the high interest rates that have more than doubled since March 2022, making it harder for homeowners to service their mortgages. The monthly mortgage payment for a HK$5 million ($638,000) property has increased by 30% from March 2022 based on a 30-year loan, data from mReferral Mortgage Brokerage Services show.
Many homeowners who borrowed heavily from banks during the boom years when prices were rising more than 10% a year are now feeling the pinch. New mortgage applications with more than an 80% loan-to-value ratio made up 36% of the total in 2022, up from 14% in 2019, when Hong Kong relaxed the mortgage rules for first home buyers, according to mReferral.
The real estate market’s down cycle is also contributing to the pressure on struggling homeowners by making it harder to quickly offload their assets at a price that can cover their loans, said Dick Ip, assistant vice president at Pan Asian Mortgage Advisory Co.
Property Prices Down 17% From Peak
Hong Kong’s property market enjoyed a two-decade bull run that created a wealth gap and led to the city ranking as the least affordable housing market in the world. But since 2021, there’s been a price slump following an exodus of residents, severe Covid-19 restrictions, a weakening economy and social unrest.
Prices are now down 17% from the 2021 peak, despite a brief recovery in the first half of this year, according to Centaline. Some analysts expect prices to fall further as supply increases and demand remains subdued.
