The heat is on
Rising residential rentals and tightening supply make finding a family home in a prime Hong Kong location no picnic. Jane Drew talks to Anne-Marie Sage, regional director residential Jones Lang LaSalle
The Peak, Island-South and Mid-Levels – these are the upmarket echelons of Hong Kong that many of us aspire to living in. We dream about being offered an expat package, so that we could settle our families on Repulse Bay Road or Conduit Road in a large flat or even a stand-alone house, with facilities on tap.
You’d think that the only hard part about house hunting in Hong Kong’s prime districts would be deciding on the location – difficult to choose between a beachfront or Peak-side property, perhaps. But given the current market, more serious issues are at stake: not only are grade-A homes in short supply, but even the most extravagant monthly allowances may no longer quite cover the rent.
It’s at this time of year that multinational companies review their staff’s rental allowances to check that they are in line with the market price. And, it’s a good thing they do.
“Rental allowances will have to increase as the overall market is up 17.6 percent since this time last year,” says Anne-Marie Sage regional director Residential Jones Lang LaSalle. “There is a huge difference in the type of property a senior executive coming in now can acquire, even compared to a colleague who signed a lease six months ago.”
On the Peak you are now looking at a rental of HK$40 to HK$64 per square foot; on the South-Side HK$33 to HK$59 per square foot; and in Mid-Levels HK$34 to HK$53 per square foot.
The price range for homes in these areas is huge as detached houses and villas are available as well as apartments, but even at the lower end we are talking simply astronomical sums. And over the coming year, rents are expected to keep on rising.
“We expect at least 15 percent growth this year,” says Sage. “You would think the economic situation in the U.S. would have some impact – even here in Hong Kong we don’t live in isolation – but it’s not happening yet. You have to look at the reverse psychology: perhaps more and more people will choose to concentrate their wealth in Hong Kong and move their businesses here.”
No doubt companies will up the “hardship allowances” of their top executives to match landlord’s asking prices, but the speed at which rents are rising may still cause problems for those looking to lease at the top end of the market.
“If you came on a look-see trip from overseas three months ago and chose your location and looked into schooling for your kids, you’re in for a significant disappointment,” says Sage. “A couple of months on, and you simply won’t be able to afford the same properties.”
With The Peak, Island-South and Mid-Levels, we are of course looking at a very limited area in which to house (a growing number of) people, and the problem of supply and demand is escalating as there are very few new developments coming on stream.
“For popular units like Branksome Crest, The Manhattan and The Repulse Bay Apartments, rents are at a premium because there are waiting lists. There is a huge demand for properties with facilities and modern fixtures and fittings,” says Sage.
Since the middle of 2007, a number of large multinationals have been expanding or coming into Hong Kong for the first time, and the city has been flooded with new expat residents. This has put more pressure on the luxury rental market: prices are up and availability is at an all-time low.
“Residential luxury leasing follows take up of grade-A office space – the office sector is booming and so residential follows,” says Sage. “In the last half of last year, 65 percent of our leasing transactions were from people in finance-related industries.”
The pressure will really be on in the next few months as expat families, who plan to be settled in Hong Kong in time for the start of the school year in September, will be flying in to seek out suitable housing.
Schooling and community
One of the main reasons top executives fight it out for South-Side, Mid-Levels and Peak homes is because this is where the major international schools are located. Several schools have expanded recently as there is so much demand but it can still be a struggle for parents to secure places for their kids.
“Companies need to get the right advice and stay well ahead of the game,” says Sage. “In the end we’ve always managed to find a place for all the kids that need one, but it isn’t easy. Schools and businesses are lobbying the government to provide more land for new international schools.”
Sage also points out that the situation is worsening since the demographic of the typical expat family is changing. “Top management used to be older, and by the time they came to Hong Kong their children were at university,” she says. “Now senior CEOs are that much younger, and when they relocate to Hong Kong they bring young families with them.”
If proximity to good schools is one reason high-flyers favour the top three locales, a sense of belonging is another. Particularly when they first move to Hong Kong, foreigners want to live in well-established expat areas.
“There’s been lots of interest in West Kowloon from people who travel to China for work,” says Sage. “But the interest is from young professionals and couples, not families.” And it’s the same story in Quarry Bay. The prime office spaces in this area are now full to capacity but there’s little on offer socially for expats. Nearby Grand Promenade is a superb development but it’s not somewhere executives want to house their wives and kids.
In this market it might make increasing sense to buy rather than lease, assuming companies allow housing allowances to be so used. But people have to be comfortable with the property market to buy – and expats tend to be seconded here on average for just three to four years.
“The sales market is doing very well but you need to be either very familiar with Hong Kong or very brave to buy,” says Sage. “Most people who make the transition have lived here for some time and plan to stay on. Aside from Mid-Levels, the Peak and Island South, their focus tends to be on Clear Water Bay, Sai Kung and Discovery Bay: areas that are more affordable and less polluted than those on Hong Kong Island.”
But the banks and hedge funds still want grade-A office space in Hong Kong Island, and the same can be said for their top-level employees. One thing that can be relied on then, is the demand for luxury property in the heart of town (the Peak and Mid-Levels) or on the sunny South-Side.
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