Developers jack up price cuts

Kiasu-Victim-of-the-Month Award goes to 30-year-old banker Foster Lee, who, after watching property prices rise for four years, has chosen this time to buy an apartment in West Kowloon (presumably The Austin, at around HK$19,000 a square foot). “You see that people who earn less than you have caught up with you because they bought then,” he told Reuters. It is classic ‘afraid to lose’ thinking – and of course investor psychology at its most emotional and thus illogical.

He adds: “It’s like a girl you liked got married.” Except it’s not. He didn’t lose anything to anyone by not buying earlier; it’s just that other people got something he didn’t get. But that’s how kiasu works: others’ gains seem to be pretty much at your expense. (In Singapore and Malaysia, where the study of this attitude is highly developed, it is common for people to note the licence-plate numbers of vehicles involved in accidents, to use the digits in the lottery. The idea is that now those numbers have delivered misfortune to another person, they will be luckier for you.)

‘Developers jack up prices’, screeches the Standard. Like many media moguls, owner Charles Ho shoe-shines the property tycoons and cartels, mainly out of caste loyalty, but also because his newspapers benefit from the big conglomerates’ advertising. The paper’s intention is to make you want to rush out and buy real estate now. Under the circumstances of a liquidity/supply-generated bubble with relatively little obvious upside to prices, you might think ‘Developers reduce prices’ would be a bigger lure, but as Foster shows us, it’s not. Weirdly, It would also be more accurate.

The real-estate companies are indeed slashing their prices, to the extent that their latest developments (which of course are nowhere near completion yet) undercut similar second-hand units in the same neighbourhoods. They are using rebates and offers to pay stamp duty in order to minimize the reduction on the price tag, but the bottom line is the buyer pays less and they make less.

The inevitable consequence is that the asking prices for second-hand places have to come down. The sellers, who we can be sure have some kiasu hang-ups of their own, will show intense reluctance to discount; a typical Hong Kong property owner or landlord would rather have six months’ of all-day root canal treatment than cut the price. When it starts, however, there is a chance they will all rush and panic-sell. That’s when the fun starts, and people throw themselves from windows, and the government will suddenly start worrying about having a stable and ‘healthy’ market (understandably, given that it includes people like Labour Secretary Matthew Cheung, who owns eight properties on Hong Kong Island.)

Maybe. There is a theory that Hong Kong has considerable pent-up demand, and a relatively mild correction – say, 25% – will clear the market. Another theory is that whatever happens, the US Dollar is going to shrivel away into nothing and the currency peg will condemn us to pushing cash around in wheelbarrows, and homes will be costing a billion bucks per square inch. Which should make Foster happy.



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9 Responses to Developers jack up price cuts

  1. Sid says:

    Of course, you could argue that the indisputable herd mentality does have some rationale, because… everybody else will follow it, which will further push up prices.

    In extreme short-termism, the aim is simply to be ahead of the curve, to get in early — or, if all else fails, to glare at, unsettle, destabilise, trick or complain about the early adopters.

    It’s being seen to be smart or to win that counts, not any underlying long-term reality, best left to academics, bloggers, devils, women and other also-rans.

    Why else, only in HK, does a peaceful neighbourhood double in price as soon as the jack-hammers move in?

  2. Real Tax Payer (retired) says:

    $4.4 million = 2.7 million pounds ?

    Someone at Reuters can not divide by 12, which calls into question Reuters’ whole news- worthiness

    PS : Just glad that my wife persuaded my to buy at the very bottom of the post 2008 financial crisis.

    Hint: Always remember Jake van der Kamp’s rule : when property agents start closing shop en masse it’s time to buy.

  3. Real Tax Payer (retired) says:

    Sorry – I take that back.

    Reuters meant US$ 4.4 million !

    Now that’s what I call accurate reporting but crazy prices

  4. Big Al says:

    I can see why Matthew CHEUNG sits on the poverty commission – he only owns 8 properties, which I guess puts him at the bottom of the senior civil servants ladder. But, wait! Upon closer inspection, he actually only owns 50% on one of the properties. The rest are owned by, guess who? His wife, of course! Honestly, these wimmin’ who marry civil servants really should take out a pre-nup just to ensure they don’t go to court/jail on behalf of their beloved lo-gung at the point in his illustrious government career when the shit hits the fan!

  5. gweiloeye says:

    So they are giving 15% discount/rebate to cover the stamp duty with the click of the fingers, which means to me that they had already overpriced the properties by at least 15%. And people actually are falling for this?

    And can they stop calling these dog boxes “luxury” – I’ve seen more luxury in a Starbucks.

  6. maugrim says:

    Once the Fed starts tapering in March, along with interest rate rises ahead, not including present jitters in the Chinese banking industry and voila, we have a slow down in HK’s inflated property market.

  7. Gumshoe says:

    I, personally, can’t wait until short sighted ‘investors’ have to eat the crap sandwich they made for themselves. They would fail the famed ‘Business Ethics’ question in Billy Madison even more miserably than was portrayed in that crown jewels of the motion picture industry.

  8. Pornstar Wong says:

    The ludicrous 30pc premium that developers typically charged for new property — which, as an Englishman used to living in Victorian houses, mystified me — has gone. However, I doubt this will force secondhand flat prices down by much as the spivs were pushed out a couple of years ago. Your typical HK flat owner is now some old Hokkien dude in North Point who can’t be arsed to take phone calls from agents.

  9. @gweiloeye – you don’t have much idea how capitalism works, do you? The price of a commodity bears no strict relation to its cost of production – otherwise big name designers would sell their T-shirts at the same price as the HK$50 ones in Giordano. Rule one: if there’s a sucker prepared to pay a higher price, take advantage of him (or her).

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