Hong Kong banks face growing pile of repossessed homes as sales slow

Hong Kong banks are grappling with a rising number of repossessed homes on the market as developers' aggressive pricing lures buyers away from second-hand properties. The stock of residential properties listed by mortgagees surged 30% in the third quarter to 262 at the end of September, marking a four-quarter high. This sharp increase, driven primarily by new listings far surpassing sales, has been particularly pronounced in the HK$10 million to HK$20 million price range, where the stock of mortgagee properties more than doubled.

The stock of these properties has risen for two straight quarters, reaching its highest level since the third quarter of the previous year. Centaline Property Research senior associate director Roen Yeung suggested that the surge could be partly due to banks speeding up disposals toward the end of the year. However, aggressive pricing of new homes has dampened secondary-market transactions, causing buyers to shun repossessed properties despite potential discounts.

The total stock of mortgagee properties is expected to reach around 300 in the fourth quarter, nearing the peak seen in the second quarter of last year. Private homes priced between HK$10 million and HK$20 million saw the steepest rise in listings, with new listings in the category increasing fourfold in the third quarter, while sales lagged far behind, causing the outstanding stock to surge 167%.

Kowloon experienced the most significant regional uptick, with private residential mortgagee stock rising 57% quarter on quarter to 69 properties. The largest single sale in the third quarter was two adjoining flats at Sunrise Villa in To Kwa Wan, which fetched HK$14.1 million after being listed for HK$15.5 million, a remarkable 147% gain from their original purchase price of HK$5.705 million in 2005.

Despite the optimism, signs of caution are creeping into banks' mortgage valuations. Centaline Property Agency's Mortgage Valuation Index, which gauges major banks' assessments of residential property values, dropped 5.66 points to 42.17 this week, marking its eighth decline in nine weeks. This decline, coupled with the index remaining below the 50-point threshold separating bullish from bearish sentiment for five consecutive weeks, indicates that banks are becoming more conservative in their valuations as developers aggressively price new homes to compete with the secondary market.