25 October 2016
CK Hutchison sold all the flats at Hemera at a record pace. Photo: HKEJ
CK Hutchison sold all the flats at Hemera at a record pace. Photo: HKEJ

Does offloading of flats by CK Hutchison signal market peak?

Over the past month, CK Hutchison Holdings Ltd.’s Hemera in Tseung Kwan O has been the best-selling housing project in Hong Kong.

CKH (00001.HK) sold all 1,648 flats within two weeks, the fastest for a new project since April 2013.

However, some believe it could be a sign that the property price is peaking, because the developer was so keen to offload the units at no premium to the price of flats in the area.

Big developers are major participants in the property market, and they have more information than individual investors do.

If they are eager to sell flats, it might hint at an upcoming decline in prices, just as when listed companies are keen to issue shares in a secondary placement.

To see whether this argument is grounded in historical fact, we compiled the sales data of CKH’s predecessor, Cheung Kong (Holdings) Ltd., between 1998 and 2009.

The figures show that the prices of flats sold by Cheung Kong had not necessarily fallen either three months or six months after the sale.

For example, the sixth phase of the Kingswood Villas project was launched in 1998, and prices rose more than 20 percent within the following three to six months.

Of the 44 projects Cheung Kong launched during the period, price corrections occurred within three months at about half of them. Prices had declined six months after the flats were sold at 41 percent of the projects.

Thus, there is no clear evidence of a major correction consistently occurring soon after the projects were sold.

However, notable housing price corrections followed Cheung Kong’s offloading of about 10,000 flats in late 1998 and more than 9,000 in 2002.

Also, the developer cut back the number of flats it offered for sale from nearly 5,000 to fewer than 1,200 during a period from 2007 to 2008 when housing prices picked up rapidly.

However, the company did not hold back its offerings during the market run-up between 2003 and 2005.

And the number of flats it offered was kept at a minimum when the property market dived in the second half of 2008.

Therefore, there is no consistency in the data that would show Cheung Kong has successfully timed the market with each of its offerings.

That is to say, the property market may not necessarily go south even if the company has been actively offloading its flats.

Various factors play a part in the property market, and it’s not easy for developers to find the best window of time for launching their projects.

These projects usually involve dozens or hundreds of millions of dollars in investment, so it could cause great pressure on cash flow if a developer holds back sales. Most developers would opt to cash out quickly.

However, the overall number of new home sales does have a close relationship with price movements.

When the transaction value of new home sales over a period of 12 months posts a year-on-year rally of 90-150 percent and the unit volume rallies between 50 and 100 percent, property prices are likely to level off within a few months.

The property market is likely to pause or reverse its uptrend within the first half of this year.

However, the Hong Kong Monetary Authority’s recent measures relating to mortgage loans may force some purchasing power into the new home market, which could push back the date when the market reaches a plateau.

New home sales hit 2,500 in the first 19 days of this month, exceeding the previous record of 2,300 sold in the month of June last year.

This article appeared in the Hong Kong Economic Journal on April 23.

Translation by Julie Zhu

[Chinese version中文版]

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Hong Kong Economic Journal chief economist and strategist

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