Hong Kong property buyers willing to forfeit deposits than pay above-market prices

The number of new-home buyers who have forfeited their deposits has jumped by nearly a fifth in the first half compared with the whole of last year amid a persistent slump in property prices, according to Centaline Properties Research.

There were 149 forfeitures in the second quarter, compared with 159 in the first three months of the year, the Centaline data showed. The 308 forfeitures in the year’s first six months have already exceeded the 261 cases for 2023.

The numbers swelled after billionaire Li Ka-shing family’s flagship developer CK Asset asked the buyers of units at its #Lyos housing project, who did not go ahead with their purchases, to pay the price difference after reselling the flats at discounts of as much as 32 per cent, according to local media reports.

“The original buyers chose stage payment plan and bought the flats when the market was at its peak in 2021,” said Roen Yeung Ming-yee, senior associate director at Centaline. These buyers may have forfeited the deposit with the idea of repurchasing the same flat now as prices have dropped considerably over the past few years, she added.

Buyers who use the stage payment plan only start mortgage repayments after the property is handed over to them. Developers usually take an upfront deposit of up to 15 per cent of the purchase price.

Hong Kong’s official home price index fell 1.2 per cent month on month in June, the lowest since October 2016. That has brought the decline of second-hand homes to 3.1 per cent in the first half of the year.

Yeung said buyers may have to tread more carefully in cancelling transactions as developers are chasing down buyers to cover the difference in sale prices.

Market sentiment will become more cautious now, as buyers consider the risks of not using the mortgage loan because of cancellation of the transactions, Yeung said.

Fifteen buyers forfeited their deposits for the #Lyos project in Hung Shui Kiu in May after CK Asset reduced prices by as much as 25 per cent from its launch three years ago. The project was at the vanguard of the proliferation of Hong Kong’s so-called nano flats, tiny units measuring less than 300 sq ft.

The developer said that if the units fetch lower prices, the original buyers may be required to pay the price difference.

One buyer was required by CK Asset to pay HK$800,000 as compensation within 14 days or legal proceedings would be initiated, local media reported, citing a legal letter issued by the developer in mid-June.

CK Asset did not respond to a request for comment.

Following the signing of a provisional sale and purchase agreement, buyers are entitled to a five-day cooling-off period under the 2013 Residential Properties (First-hand Sales) Ordinance.

If the buyer does not sign the formal agreement within this time, the provisional agreement is terminated and the deposit is forfeited, with no further compensation required.

The risks are larger if the formal sale and purchase agreement is cancelled after it has been signed. The original buyer is responsible for covering any price difference if the developer resells the unit for less than what was originally paid, as per the conditions of the contract.

Of the 149 cancellation cases in the second quarter, 83 have been successfully resold as of June, representing a resale rate of 56 per cent, Centaline said, compared with 59 per cent in the first quarter.

First-hand sales slowed down in the second quarter, as did the pace of resale of forfeited flats, the property agency said.

Yeung said the deposit forfeitures are unlikely to create an adverse impact on the property market as the resale rate remains high and new supply continues apace.

It is less likely other developers will follow CK Asset’s route to recover the price difference as it will have an impact on market sentiment, she added.