Primary Market Prices Lack Reference, Buying Properties Overseas Can Be Risky

Hong Kong Property

As the property price hike continues, the housing price index is also reaching new heights. However, while everyone thinks property is a secure investment, we have seen some loss in the market. The worst case has got to be Valais in Sheung Shui, which saw eight transactions in the past year - all losses. The home owners purchased the units first-hand in 2010, and are suffering an average loss of 36% seven years later. In the same time, the property price index published by the Rates and Valuation Department has gone from 138.3 to 327.4—a 247% increase and a stark contrast from houses that lost money. 2010 was supposed to be a good time for buying real estate, but you can still suffer a loss by picking the wrong home.

Apart from Valais, The Beverly Hills in Tai Po, Imperial Cullinan in Tai Kok Tsui, The Masterpiece in Tsim Sha Tsui, Celestial Heights in Ho Man Tin and Hill Paramount in Tai Wai are all losses. These developments entered into the primary market between 2008 and 2011, and share something in common: their prices at the time of sale were rather high, and with a lack of similar second-hand units in the neighbourhood, buyers were unable to get a good reference point; in addition, with the Buyer’s Stamp Duty yet to be introduced at the time, a large number of mainland buyers—many obsessed with new offerings in the primary market—rushed to make purchases, resulting in the sellout successes despite the hefty price tags. I remember visiting Valais’ model house years ago. Picking up my indecisiveness, the property agent told me that he had to hurry to the box office and make a purchase there himself, and swiftly ditched me before the tour was even over. You can imagine the frenzy.

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These examples show that new developments sometimes can sell for crazy prices that exceed years of future value increases, but this doesn’t work in the secondary market, where past sales records of similar units serve as a safety net for buyers. It’s a shame that due to “spicy measures”, the number of second-hand offerings are continuously dropping, large units are particularly rare, and this is undoubtedly bad news for potential buyers.

On the other hand, buying property abroad poses great risks. As mainland buyers are rushing into the Hong Kong market without sufficient research on property values, and Hong Kong buyers seeking overseas properties due to domestic “spicy measures”, we need to keep in mind the cautionary examples of Valais and other loss makers and excise extra caution when making purchases overseas. Otherwise, assets could be locked into property for long periods of time, and the owner might need to take a loss in selling the home when in urgent need of cash.

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