A clear divide has opened up in Hong Kong’s property market in recent months: sales of new-build homes have surged, but the recovery in the secondary market has remained far more modest.

The contrast between the two segments is not a coincidence – and is likely to persist for some time, according to analysts.

The trend is largely being driven by developers slashing prices on new-builds to clear their inventories ahead of expected interest rate rises in the coming months. This is making new homes more affordable for buyers and diverting attention from the used property market, analysts say.

Sales of new residential properties have bounced back strongly from a slump in July, rising more than 95 per cent to hit about 1,500 in September, according to data from Centaline Property. The total value of those transactions jumped by 31.8 per cent to reach HK$20.88 billion (US$2.66 billion).

The secondary market, however, has remained sluggish. Just over 3,000 used homes were sold in September, a decline of 337 compared with July. The value of those transactions also fell by HK$2.31 billion to HK$24.76 billion.

Derek Chan Hoi-chiu, head of research at Ricacorp Properties, said the primary market had significantly outperformed the secondary market because new housing projects were attracting buyers with low prices, whereas owners in the secondary market were holding firm on their asking prices.

“Over the past two or three months, developers have priced new projects in line with – or even below – market rates,” he said. “Combined with flexible payment terms and mortgage incentives, this has significantly siphoned off purchasing power from the secondary market.”The first phase of The Sterling – a new project in Cheung Sha Wan developed by China Resources Land – is an example of the recent wave of discounting. An initial batch of 102 flats hit the market in mid-August at an average price of just HK$17,880 per square foot – and all of them sold out on their respective launch days.

It is easy to see why buyers were interested. The prices per square foot were similar to those of homes recently sold on four neighbouring residential estates, all of which are over 20 years old, according to agents.

Average transaction prices on the estates – Liberte, The Pacifica, Banyan Garden and Aqua Marine, known collectively as the “four little dragons” – hovered between HK$16,600 and HK$17,400 per square foot, agents said.

One investor surnamed Chan said he had originally been scouting for undervalued properties in the “four little dragons” area, but subsequently decided to enter the lottery to buy a home in The Sterling instead.

“Prices of new homes are comparable to those of secondary properties, yet the new developments are 20 years younger and the investment potential is greater,” he said. “Plus, with the incentives offered by developers, using leverage is more advantageous than with resale homes.”Anson Tsang, chief associate director at Hong Kong Property Services, said the launch of The Sterling had led to a 20 per cent fall in viewings on nearby used developments.

“The ‘four little dragons’ recorded only 12 and 13 transactions in August and September, respectively – a sharp decline of more than 60 per cent from the 36 transactions recorded in the year’s high in January,” Tsang said.

State Residence – another new project in North Point developed by Chow Tai Fook – has also offered steep discounts. In mid-September, the first batch of 50 flats came on the market at just over HK$20,600 per square foot.

The price is 15 per cent below the average for other new developments and secondary-market properties in the area, and as much as 40 per cent lower than some unsold flats in other new projects nearby, according to agents.

There are a total of 194 flats in State Residence, and 189 of them sold within 13 days of being launched.

Chris Wong, executive director at Century 21 Sunrise, said the sales launch for State Residence had led to a 25 per cent drop in secondary market transactions in the North Point area.

One buyer surnamed Ng said he had been going on viewings at relatively new developments in the area in September – such as Diva in Tin Hau and Fleur Pavilia in North Point – but dropped those plans to submit a purchase application at State Residence as soon as the sales launch began.

“Sellers in the secondary market are asking aggressive prices and are standing firm, with only a 1 to 2 per cent room for negotiation,” he said. “I’d rather switch to buying at a new development.”It was a similar story with phase one of The Atlas, a new residential project in Yau Tong by Yuexiu Property. The first 128 flats at the development were offered at a price of just HK$13,988 per square foot – the lowest price seen for a new development in urban Kowloon in a decade.

Norey Tsang, senior area sales manager at Midland Realty, noted that one-bedroom flats on the secondary market in the New Territories currently cost between HK$3 million and HK$4 million – a price range comparable to The Atlas.

Many buyers who had been looking at small secondary-market flats had therefore shifted their focus to enter the sales lottery for The Atlas phase one, Tsang said.

Chan of Ricacorp Properties expects developers to continue launching projects at market or even below-market prices and employ incentive strategies to attract buyers, as they focus on reducing their inventories.

“The secondary market will remain under pressure as a result,” he said. “New home projects continue to outperform the secondary market in terms of pricing, payment terms and the advantages of off-plan sales.”Chan added that the gap between the two was unlikely to narrow in the short term. The pattern of a strong primary market and a weak secondary market would persist through October, he said.

“In the medium to long term, the situation hinges on inventory levels,” he explained. “The gap will only narrow once low-priced primary market flats are gradually absorbed or secondary market owners deepen their price cuts.”