5th January 2025 – (Hong Kong) In 2024, the number of forfeited deposits in the new Hong Kong property market reached staggering heights, with a staggering 529 cases recorded by December 30th – a 98% increase from the 266 cases witnessed in the previous year. The total sum of these forfeited deposits soared to an eye-watering HK$510 million, a 50% year-on-year spike compared to the HK$340 million recorded in 2023.
This escalation in forfeited deposits is a glaring reflection of the housing market’s fragility, where buyers who had once eagerly purchased new properties during the market’s zenith found themselves grappling with plummeting prices and the harsh reality of financial constraints. The decision to forfeit deposits, a desperate measure to cut losses, has become increasingly prevalent, casting a long shadow over the market’s stability.
At the epicentre of this turmoil stands La Marina, the epitome of the forfeited deposit crisis. Located in the coveted THE SOUTHSIDE development in Wong Chuk Hang, this project witnessed an astounding 50 cases of forfeited deposits in 2024, amounting to a staggering HK$116 million. The month of December alone saw 20 cases, with forfeited deposits totalling over HK$22.8 million, a grim testament to the severity of the situation.
Yet, La Marina is not an isolated case. The resonating echoes of forfeited deposits reverberated across the housing landscape, with several high-profile projects making unwanted headlines. The Tuen Mun development Villa La Plage witnessed the year’s largest single forfeited deposit case, involving two villa units purchased by executives from the UCE Group, an electronics equipment company. The buyers, Lam Chai-chai and Chan Wai-shan, forfeited a combined deposit of HK$36.8 million, a staggering sum that highlights the magnitude of the financial risks involved.
The ripple effects of this crisis extend far beyond the developers and buyers involved. It has cast a pall over the entire housing market, eroding confidence and casting doubt on the viability of property investments. As the echoes of forfeited deposits reverberate through the industry, a looming question arises: What does the future hold for the Hong Kong housing market in 2025?
Analysts and industry experts paint a sobering picture, predicting that the trend of forfeited deposits is unlikely to subside anytime soon. With an oversupply of new properties, coupled with the lingering effects of economic uncertainty and rising interest rates, prospective buyers are expected to exercise greater caution, leading to a further increase in forfeited deposits.
Moreover, developers themselves are not immune to the repercussions of this crisis. Faced with mounting inventories and dwindling sales, they may be forced to adopt aggressive pricing strategies, sacrificing margins in a bid to offload unsold units. This, in turn, could further exacerbate the cycle of forfeited deposits, as buyers become increasingly wary of the perceived risks associated with property investments.
In a desperate attempt to stem the tide, some developers have taken proactive measures, pledging not to pursue the recovery of price differentials from buyers who forfeit their deposits. However, such concessions may ultimately prove insufficient in restoring market confidence, as the underlying economic and regulatory forces shaping the housing market remain largely beyond their control.
Declining mortgage rates, now hovering around 3.625% after the U.S. Federal Reserve’s cumulative 75 basis point cuts since September 2024, could provide a lifeline for prospective buyers. With the possibility of further rate reductions looming if the Fed funds rate falls to the projected 3.00%-3.25% range by year-end, the affordability equation may tilt in favor of homeownership. Simultaneously, the narrowing gap between gross rental yields and mortgage rates, fueled by rising residential rents, has rendered smaller units under 40 square meters an enticing investment proposition, with rental yields of approximately 4.6% already outstripping mortgage costs.
Furthermore, the government’s proactive measures to attract investment demand from funds, corporations, and affluent individuals into the residential market could inject a much-needed boost, potentially absorbing a portion of the supply overhang. However, the specter of oversupply looms large, casting a shadow over the market’s prospects. With an existing inventory of 21,000 units already exceeding the peak annual demand of 21,000 units recorded in 2019, the supply glut is poised to intensify as an additional 77,000 units under construction reach completion over the next 3-4 years. This translates into an annual supply influx of 19,250-25,667 units during this period, accounting for over 80% of the Hong Kong Housing Bureau’s 10-year target for new private housing supply until 2035.
Faced with this daunting supply pipeline, developers are expected to resort to discounted pricing strategies to clear their inventories, effectively capping potential price growth in 2025. This oversupply predicament will also stifle any prospects of price escalation in the secondary market, as the weight of excess units weighs heavily on the housing landscape.
