Hong Kong's property market has shown signs of significant decline recently, which will inevitably affect buyers' confidence in entering the market. Therefore, some developers have introduced new sales methods, with newly launched price lists featuring "property price guarantee" clauses to increase buyers' confidence in entering the market.
Observing a falling property market, Sun Hung Kai Properties (SHKP) deployed this sales strategy for the remaining stock of Novo Land Phase 2A in Tuen Mun, and added "property price guarantee” to the new price list, covering all 93 units on the new price list, guaranteeing buyers a 5 percent refund on the price of their purchased flats under specific conditions.
This refund will be applicable if, by May 2024, the city’s house price index – announced by the Rating and Valuation Department – is lower than the value recorded in the month of the purchase.
It's worth noting that the above index refers to all New Territories categories in the monthly ‘Private Domestic Price Indices for Selected Popular Developments’, published by the Rating and Valuation Department. The average housing price index refers to home prices from the month following the signing of the preliminary contract to May 2024.
Let’s apply this to Room E on the third floor of Arreso Tower 5, the lowest-priced studio apartment in the SHKP’s fourth price list. Measuring 238 square feet, the unit’s discounted price is about HK$3.4 million, at a discounted price per square foot of HK$14,096. If the average housing price index drops by 10% as of May 2024 – that is, the unit price drops to about HK$3 million – the buyer will receive a subsidy worth 5% of their home’s current price. In this case, the buyer receives HK$167,700.
How does one apply for the Property Price Guarantee Scheme? Each specified residential property is entitled to price protection only once. Purchasers should apply in writing to the Vendor on or before 31 October 2024 for price protection. Upon receipt of the application and verification of its accuracy, the Vendor will credit the purchase price directly to the Purchaser's bank account on or before 31 December 2024.
To the buyer, is the developer's offer of property price guarantee a profit-making payment method? In fact, depending on the future property price trends, this is a gamble between the developer and the buyer, and the buyer faces a certain degree of risk. For example, if the property prices of Novo Land 2A falls, while the average housing price index remains flat or rises, the buyer will not receive any compensation.
In addition, another potential losing situation for the buyer is when home prices fall below the amount covered by the property price guarantee. For example, if the property price index falls by 16%, that is, the lowest-priced studio apartment is worth HK$536,800, and the buyer can receive at most about HK$167,700 in subsidy. In other words, under such circumstances, buyers can only be protected against a fall in property prices of approximately 31.2%.
Nonetheless, with or without a property price guarantee, buying a property is inherently risky. It is difficult for buyers to predict whether home prices will rise or fall. In addition, with a long property payment period, home prices will inevitably fluctuate. Therefore, to determine whether to enter the market, buyers should act according to their means.
