UPDATE 1-Hong Kong property sales slide to 17-year low as tax hike bites

Tue Jan 7, 2014 3:11am EST

Related Topics

* Number of transactions down 39 pct in 2013 vs 2012

* Deals value down 30 pct from a year earlier to $59 bln

* Forecasters see home prices falling this year (Updates to add comment from property developers and analysts)

By Yimou Lee

HONG KONG, Jan 7 (Reuters) - The number of properties sold in Hong Kong fell by more than a third last year to a 17-year low as a surge in sales tax, designed to burst a price bubble, turned off buyers in one of the world's most expensive cities.

Despite steep discounts offered by the city's influential property developers, the total number of sale and purchase agreements concluded in 2013 was 70,503, down 39 percent from 2012, according to the Hong Kong Land Registry.

The value of deals dropped 30 percent from a year earlier to HK$456 billion ($59 billion) and forecasters expect the downturn to continue this year. With local tycoons like Li Ka-shing warning of the impact on his property business last year, in November Deutsche Bank said Hong Kong home prices could drop up to 50 percent over the following 12 months.

Last February's doubling of stamp duty, or tax, on residential transactions to as much as 8.5 percent of the sale value was designed to prick the city's property bubble. But it has yet to stop the price of homes creeping up: according to property services firm Centaline Property, overall home prices edged up 3 percent for the year, and have jumped 120 percent since 2008.

That could change soon, making life tougher for the property development industry.

"Since the new measure is still there, I don't believe the worst is already over," said Ricky Poon, executive director of residential sales at real estate services firm Colliers International in Hong Kong.

"Developers will have less and less in profit margins. That's for sure," Poon said. He forecast mass-market home prices will drop up to 20 percent in 2014.

Li's Cheung Kong (Holdings) Ltd, the city's second-largest developer, offered price discounts of up to 25 percent for a new residential home development launched last weekend, one of the steepest cuts seen since new sales rules came into effect last April.

PRICE CUTS AHEAD

Despite predictions that the property market will remain in the doldrums for some time, Cheung Kong put on a brave face this week. It predicted prices could rebound by up to 10 percent amid a positive response to new housing developments.

"The worst is over for the city's housing market. You can see from the strong sales responses for the recent new project launches," Cheung Kong's executive director Justin Chiu Kwok-hung was quoted as saying in daily paper the South China Morning Post.

Analysts see little sign of that, instead forecasting further pressure on developers to lower prices as new home construction projects are completed.

"There is zero chance that property prices will go up this year," said CLSA property analyst Nicole Wong, adding that developers had already been forced to price homes in newly built properties some 20 to 30 percent below those for sale in older buildings.

"In 2014 there will be pressure to cut prices further for inventory clearance," Wong said. Supply for new homes may increase by up to 85 percent in 2014, she said.

In a reflection on the scale of last year's slowdown, last November tycoon Li said his property business had suffered its worst year in more than a decade.

Major rival Sun Hung Kais Properties Ltd in September posted a 14 percent fall in full-year underlying profit for 2013, trailing forecasts and marking its first drop in annual earnings due to slow sales in Hong Kong.

Prices in the former British colony remain among the highest in the world. While Hong Kong first began taking steps to cool property prices in October 2009, no real impact had been seen until the February increase in stamp duty on residential transactions.

($1 = 7.7547 Hong Kong dollars) (Reporting By Yimou Lee; Editing by Anne Marie Roantree and Kenneth Maxwell)

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