27 October 2016
Upper East housing project in Hung Hom is among those that are said to have witnessed a significant number of abandoned deals. Photo: HKEJ
Upper East housing project in Hung Hom is among those that are said to have witnessed a significant number of abandoned deals. Photo: HKEJ

Deposit forfeitures on the rise at newly built small homes

There has been a significant increase in abandoned transactions of newly built homes, especially those that involve subdivided units, Metro Daily reported, citing a surge in cases where buyers have backed off after paying an initial deposit.

The Upper East housing project in Hung Hom, where some 200-square-feet homes were being offered for HK$3 million (US$390,000), is among the ventures that has seen a high number of deposit forfeitures, according to the report.

Backed by Kowloon Development Co. Ltd. (00034.HK), “The Town of Subdivided Flats” — as it has been nicknamed — launched sales earlier this month.

However, there have already been eleven cases of deposit forfeiture, the report said, citing data from an electronic platform operated by the government for primary market transactions.

The deposit forfeiture suggests that some buyers would rather lose what they have paid for the booking, rather than cope with future uncertainties in the property market. 

The eleven flats forgone by the buyers are said to be worth more than HK$50 million (US$6.45 million) in total.

Based on the calculation that the buyers paid about five percent for the flats as deposits, the developer is estimated to have pocketed at least HK$2.55 million while still retaining the units.

The project is not alone. Statistics show there were another 17 similar cases of deposit forfeiture, most of which involved subdivided flats, in the first half of the month.

The list includes five units in The Beaumount II located in Tseung Kwan O, a venture of Cheung Kong Property Holdings Ltd. (01113.HK).

While most developers say the deposit forfeitures are due to individual factors, some observers say it reflects growing risk perception in the subdivided units segment.

Li Kui-wai, associate professor of economics and finance at the City University, said prices of subdivided flats normally tend to rise slowly but fall rapidly.

Such high risk characteristics can easily prompt buyers to forego deposits if they turn pessimistic over the market, he said.

Li pointed out the luxury housing market, in contrast to the small unit segment, hasn’t recorded any clear sign of deposit forfeitures.

Lawrence Wong Dun-king, honorary chairman of the Hong Kong Chamber of Professional property Consultants, said a rise in deposit forfeitures should be treated as a correction, rather than a deterioration of the housing market.

Wong believes the housing market as a whole may fall only by 5-10 percent at most.

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