Developers' threat keeps buyers cautious

It is apparent that buyers have exercised greater caution when purchasing new homes after only 17 percent of the units put up for sale by Wheelock Properties in Tseung Kwan O were sold on Saturday.

There can be a number of factors for the caution.

While many are ready to blame the Federal Reserve for keeping interest rates high with no sign of an imminent drop, a threat by a senior executive of CK Asset to sue defaulting buyers to recover the price differences if the defaulted units were resold for lower prices is believed to have also hit a nerve.

Given the current property market trend, even those developers previously reluctant to reduce their official prices despite offering large rebates by way of so-called "agents' commissions" have also come under pressure to give up their previous pricing strategy.

In order to compete for the purchasing power remaining, many are following suit to cut prices directly by double-digit percentages to create a wow effect.

If they failed to do so, they would see difficulties in clearing inventories that have been stacking up as more new builds are scheduled to commence construction.

It is imaginable that the most impacted are those who bought homes off plan over the past two or three years.

As I commented in this column recently, quite a few are finding it difficult to secure enough mortgage loans to complete the purchases even though the time has come to complete them.

Their choice is limited - either to cough up the shortfall by whatever means, or default on the purchases and face probable legal action within the next six years as, by law, developers have six years to claim the balance.

One of the most prominent defaulting buyers of new homes is the former girl friend of local billionaire Joseph Lau Luen-hung.

Popularly known as Yvonne Lui Lai-kwan before changing her name to Yvonne Lui Pui-lam, Lui makes entertainment news headlines from time to time.

In mid-2021, she committed to buying four luxury units at MTRC's project The Southland in Wong Chuk Hang for a total consideration of HK$140 million.

She was reported to have defaulted on all of them in January this year, giving up HK$14 million in deposits.

These units were recently resold for HK$115 million - or HK$25 million below the original price.

The consortium developing the project could, in theory, sue Lui for the balance of HK$11 million over the next six years.

Unlike Lui, ordinary home buyers do not have a billionaire behind them to cushion the blow when it comes to the crunch.

The Hong Kong Monetary Authority estimated there were 32,073 cases of negative equity as of the end of March this year, up from 25,163 cases at the end of December 2023.

While these figures did not include those borrowing from non-banking financial institutions, the actual number of negative equity cases is believed to be higher.

Will the figure increase steeply when the HKMA updates the estimate for the quarter ending June in light of developers' aggressive pricing strategy to clear inventories these days?

The answer is obvious.