Life at the top
What with overseas investment and potential expansion of the luxury zone, Hong Kong's high-end housing is set to go higher. Alex Frew McMillan reports
Life has been very good for developers and owners of luxury property in Hong Kong, of late. In fact the market at the top end has effectively split off from the rest of the city. Luxury property seems to know only one way, up, and we're not talking about its location on The Peak.
In 2006, luxury prices rose 3.2 percent, according to Jones Lang LaSalle, when average property prices were actually down, falling by 0.4 percent. The luxury property gains in 2004 as the city roared back from Sars were massive, up 62.1 percent, and almost double the general gains of 35.3 percent.
Only 2005 bucked the trend, when the mass market outperformed luxury, perhaps because the top end had got a little ahead of itself the previous year. But the situation soon restored itself, and luxury residential properties shot up 24.5 percent in 2007, again according to preliminary figures from Jones Lang LaSalle, outdoing the mass market's 17 percent gain by 7.5 percentage points.
Hong Kong was the talk of the property world again at the end of November, when word broke of the latest record-breaking residential sale. This time, it was Branksome Crest that was seizing the title belt for the highest price ever paid for an apartment in the city. The 7,088-square-foot penthouse on the 52nd and 53rd floors of the Kerry Properties development in Mid-Levels sold for HK$283 million, or HK$40,000 per square foot.
Jack Ma, the chairman of online company Alibaba, was the reported buyer. The price was a record per square foot for an apartment in Hong Kong, and the overall price made it the highest price tag for an apartment in Asia.
You'd think the situation couldn't last: simple mathematics tells you one part of the market can't keep posting outsize percentage gains forever — prices would have to go into an ever-higher, exponential curve. Sooner or later, the pace (not the price) of the rest of the market has to catch up.
What's more, the sellers of luxury property — flush with their windfall — are likely to buy elsewhere in the city. That should in theory drive up the rest of the market. Some of that surplus cash should trickle into general property, or investors would realise things are getting out of kilter and look to buy into smaller flats.
But property agents say the top of the market isn't local but international, where the richest of the rich compare Hong Kong prices to those in Manhattan or Mayfair or Moscow and find them not that bad. The rich keep getting richer, or at least are getting richer faster than the rest of us, suggesting they could keep paying more and more.
Brokers say there is a shortage of very high-end properties, with an increasing number of top executives parking their families in Hong Kong while they commute to China for work. That squeeze on space works against China's explosion of growth, which is luring more and more companies to the city.
So if there's not enough luxury space, developers and landlords are going to try to find more of it. The traditional neighbourhoods of The Peak and Mid-Levels are already been rivalled by the south of Hong Kong island, and some luxury properties in new Kowloon developments are commanding eye-popping prices.
The luxury space race suggests surrounding neighbourhoods are likely to see increasing gentrification and redevelopment, as enterprising owners and developers seek to expand the luxury zone.
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