What’s the deal with e-valuations for residential properties?

Last Thursday, a former colleague sought advice on his 3-bedroomed flat at Kingswood Villas in Tin Shui Wai. He helped his relative decide the selling price to deal with agents, and he sent me two online valuation records from HSBC and Bank of China. Their indicative value was HKD7.72 million and HKD 7.48 Million respectively, the difference of their market value is 3.21%.

His family put this flat on the market in July this year and had some offers of around HKD7.3 million from estate agents in July and August. Recently, an agent informed him they had a buyer willing to offer HKD7 million. He told me the number of transactions at Kingswood Villas had suddenly cooled a lot in the past two months and wondered why the market value was so different from the banks’ value.

According to the land registry, the volume of second-hand residential transactions in October had decreased by 43.3% off July’s figures, especially in the New Territories. Many buyers were cautious after rumours of intervention by Beijing, the stock market rumblings from China Evergrande and the announcement of the Northern Metropolis strategy in the new Policy Address.

Developers set attractive prices for their pre-sold units, which indirectly shrank the volume of second-hand market transactions. Also, some popular developments saw a downward adjustment in October.?

Since HSBC, Heng Sang and Bank of China started providing e-valuation for flats, buyers, sellers and agents all rely on their indications to make decisions.

Let’s go through some of last month’s transactions and compare the e-valuations in the top 10 estate developments.???

City One Shatin

There were 15 transactions, more than 10 of which were over-valued by HSBC’s and BOC’s e-valuation. Two transactions were higher than their e-val price from HSBC and BOC. Both happened at the end of October, reflecting that market reluctance is beginning to fade and prices are stabilising.

Kingswood Villas

There were 13 transactions in Kingswood Villas, with 11 being over-valued by HSBC and BOC. Bigger flats – from 557 sq. ft. to 648 sq. ft. – had a relatively more significant gap between the purchase price and e-valuation results.

Laguna City

HSBC had nine (90%) transactions higher than the purchase price by 1.2% to 5% in October in Laguna City. Around 5% is a reasonable range for prices in the residential market.??

Sceneway Garden

Flats selling for less than HKD10 million were more popular in Sceneway Garden than the more expensive units. Buyers have to make a higher deposit on homes larger than HKD10 Million units. Sometimes sellers may offer some discounts for quicker sales in a less active market. This is why we often see over-valuation in the > HKD10 million price range. As with most places, larger flats priced higher than HKD10 million were relatively less popular than those under HKD10 million.

Mei Foo Sun Chuen

There were two extreme cases in Mei Foo Sun Chuen. For “Flat D, 8/F, 53 Broadway,” HSBC was -6% off and BOC -11.2% off. For “Flat C, 5/F, 15 Mount Sterling Mall,” HSBC was -9.7% off, and BOC was 15.4%. This shows that both e-valuations did not pay close enough attention to the latest market trends in asking prices. Insufficient transaction numbers will limit the accuracy of the final indication.??

Whampoa Garden

In transactions that were higher than HKD10 million, we saw a wide gap between actual purchase prices and bank e-valuations for Whampoa Gardens. HSBC and BOC adopted the higher unit rate of smaller flats to estimate a larger units’ value. We need to be aware of these issues and understand that many agents will try to persuade buyers to adopt the bank valuation to close the deal and get their mortgage from the valuing bank.???

South Horizons

In South Horizons, the difference between transacted price and e-valuation was generally narrower than the other nine estates. These two e-valuation systems are maintained by two surveyor’s firms, and they both have disclaimers:

“Any information and valuation on any property herein is for reference only and is not binding on the Bank. The Bank does not warrant the accuracy, timeliness, or completeness of any such information and valuation or whether they are fit for any purposes. The Bank also does not assume any liability for any reliance on such information and valuation by any person.”

Kornhill, Taikoo Shing and Heng Fa Chuen

In one of the Kornhill and Taikoo Shing transactions – for “Flat 16, 26/F, Block P, Kornhill” selling for more than HKD10 million – HSBC e-valuation over-valued by 7.8% and BOC undervalued by 7.3%. HKD10 million is critical when valuing because of the new Mortgage Insurance Program scheme. (Buyers of flats that are HKD10 million or under can apply for an 80% - 90% mortgage). Sellers will offer little discount to help budget-limited buyers to apply for the MIP scheme.

Traditional valuation work relies on valuers checking transactions records to compare prices and make adjustments on floor level, view, location, facilities, etc. If we need to provide many indications for a single valuation, we need manpower and time to achieve accurate results.

Automated Valuation Model (AVM) is a brand-new solution that can provide real estate property valuations using mathematical modelling combined with a database. It also considers current asking prices, previous surveyor valuations and historical flat price movements.

The advantages of using AVMs over traditional appraisals are that they save time, money and resources, thus lowering the cost of valuing a property. Unlike formal appraisals, AVM outputs do not suffer from the same fraud risk, although certain providers can have their systems manipulated intentionally or otherwise if property features are incorrectly entered.

Surveyor’s firms may consider adding resources to establish the Automated Valuation Model (AVM) for long-term, sustainable development in our industry.

* all transaction from Memfus Wong/Midland/Centaline and e-valutaion from HSBC and Bank of China?