Property too hot to handle in Hong Kong
By Olivia Chung
HONG KONG - Hong Kong made international headlines last week when a local
developer, Henderson Land, announced that a five-bedroom luxury apartment in
the affluent Mid-Levels district had sold for HK$71,280 (US$9,197) per square
foot, setting a new world record amid the global financial crisis.
The price has taken the city by surprise, with potential buyers and industry
players worried the skyrocketing luxury housing market, driven by wealthy
mainland Chinese, will create a bubble in the low- and mid-end housing markets.
The figure of HK$71,280 was calculated on the basis of gross floor area, which
includes common areas like elevator lobbies. But most real estate markets use a
narrower definition of square
footage that makes the price HK$88,000 ($11,354), breaking the world record set
at $9,590 per square feet by the One Hyde Park building in London at the height
of pre-crash days.
With the successful sale of the duplex home on the 68th floor of 39 Conduit
Road, a luxurious residential building, Henderson Land - controlled by
multi-billionaire Lee Shau-kee - is now asking HK$100,000 per square foot for
two penthouses on the top two floors of the building.
Yan, a young doctor, said that the rising cost of housing was pricing the
middle class - the traditional backbone of the city's economy - out of the real
estate market in downtown Hong Kong. "I am a doctor and my boyfriend is a
barrister, but we can't afford an apartment," she said.
She put the blame on "hot" money from the mainland. "As middle-class citizens,
we do not ask for any favors from the government. But the property market has
been fueled by hot money from China, how can we afford a mortgage down payment
now?" she asked.
A retired woman named Zhang said she had considered moving to the New
Territories, a suburban area located outside Hong Kong's center, but had been
unable to find an affordable home there.
"The price of a 530-square-foot apartment in Tuen Mun I visited has risen by
about 20% to more than HK$1 million from a year ago. I'm afraid it may be at
its peak price, so I dare not to buy it,'' she said.
Prices have been rising since January, according to local real estate agents.
For example, in Mei Foo Sun Chuen, a large private housing estate in Kowloon,
the average asking price rose by 26% to HK$4,194 per square foot last month
from HK$3,320 in January, according to Ricacorp Properties.
Even the cheapest apartments in Taikoo Shing on Hong Kong Island or City One in
Sha Tin in the New Territories are costing more than HK$5,500 per square foot,
while in distant areas such as Tin Shui Wai in the New Territories - which
require more than hour's commute to the center - apartments are selling for
HK$2,500 to HK$3,000 per square foot.
Ricky Poon, an executive director of residential sales at consultant Colliers
International, expects mid-level residential prices to rise a further 5% to 8%
over the next 12 months, while luxury residential prices will rise a further 5%
to 10%. He said sustained buying interest, low interest rates, limited new
supply and economic recovery were driving the boost in sales.
Shih Wing-ching, chairman of Centaline Holdings - one of the city's largest
real estate agencies, attributed the rising property market to a growing number
of mainland buyers.
"The transaction value created by mainland investors was large enough to give a
big boost to the city's housing sales total," Shih said, adding that mainland
buyers now accounted for about 40% of the luxury property market.
"Most mainland buyers buy newly released properties of bigger than 1,000 square
feet [93 square meters], which are sold for at least HK$20 million each," said
Shih. In the mass property market, mainland buyers account for about 10% at
present, but the market share is getting bigger, Shih said.
The growing numbers of mainlanders investing in Hong Kong's property market has
reversed a sudden dip in prices during the first few months after the collapse
of Lehman Brothers in September last year.
At the beginning of the global financial crisis, Shih said Hong Kong's property
market was stuck in an "ice age". But a year later, he says he was wrong to
close five branches and cut more than 300 sales staff in response. From January
to June, prices in the residential market had risen about 20%, with at least
10% of the buyers from the mainland, he said.
This marks a reverse in money flow. Until recently, it was funds from Hong Kong
that flew into the mainland for property speculation. Known to be fond of
investing in or speculating on housing, in the early 1990s, Hong Kong people
began to speculate on property across the border. This prompted concerns in
mainland China that the influx of overseas funds would aggravate speculation in
the domestic housing market, raising already surging property prices and
currency rates.
China's fast-paced economic development has meant prices of luxury housing in
major cities such as Beijing and Shanghai are quickly catching up with those in
Hong Kong. For instance, units at the Thomson Riviera, considered one of the
most expensive housing complexes in Shanghai, went on sale for US$16,080 per
square meter. Affected by the global financial crisis, property prices on the
mainland dipped for a while but began to pick up since early this year.
Mainland investors are now coming to speculate on real estate in Hong Kong -
and Hong Kong people have mixed feelings.
"Rising prices for luxury properties will inevitably drive up prices in the
overall market as they are very likely to be distorted by investors from the
mainland," said Shih. He called for the Hong Kong government, as Beijing did in
mid-2006, to consider imposing restrictions on non-Hong Kong residents buying
residential housing in the territory.
Beijing's rules, jointly issued by six central government ministries, required
any foreign institutions and individuals buying mainland property not for
personal use to set up a mainland-registered company for the purchases. It also
required that any foreign-funded firms investing more than US$10 million in the
property market to have registered capital of at least 50% of their planned
investment.
A JP Morgan analyst, Sunny Tam, said the Hong Kong government had not put
forward any concrete measures to change the status quo, despite the record high
prices in the property market.
In Hong Kong, the government owns the land, controls the market and decides
when to make more land through reclamation. It also evaluates development plans
case-by-case, rather than following set regulations.
"According to the chief executive's latest policy address, the government will
not indiscriminately supply residential or commercial land nor will they sell
land way below market prices. The [Land] Application List system would be kept
... We believe there would not be anything drastic announced in the near term
to curb the high property prices," Tam wrote in a research note.
The Hong Kong government has sold only two of the residential sites on its land
application list in the past two years.
Eric Wong, executive director and co-head of Asia Real Estate Research of UBS,
warned the government's failure to increase land supply may be helping inflate
a property bubble, which could end up bigger than that of 1997.
Hong Kong's real estate bubble burst in 1998 due to the government's housing
policy, though the 1997 Asian financial crisis also had some influence.
"Record-low supplies expose [Hong Kong] to the risk of record-high rents and
business costs as the economy recovers, and the risk of price bubbles is
aggravated by the global monetary supply bubble not finding relief," Wong said
in a report.
Paul Louie, the regional head of property research at Nomura International
(Hong Kong), said one-off deals could not be taken as evidence of a bubble. But
he said the skyrocketing rises in the luxury property market could affect
prices for nearby buildings.
As mainland investors turn the tables on Hong Kong investors and send property
prices soaring as high as the city's skyline, Hong Kong people should keep in
mind Newton's law of physics - what goes up must come down.
Olivia Chung is a senior Asia Times Online reporter.
(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about
sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
