|
Ghetto Town?
Are Hong Kong’s property prices creating a city of haves and have-nots?
| Text : Elizabeth Kerr | Photo : www.thinkstockphotos.com |
The real estate
market in Hong Kong is one of the most complex, vibrant and sometimes volatile in the world, and it’s the engine that makes it run. Every burp and sigh makes news. 2010 saw rising prices, a series of government measures aimed to stem the tide and cool the overheated market, renewed debate over a re-envisioned Home Ownership Scheme and record land auctions among just some of the headline-generating stories.
One issue coming up time and again is the inability of the middle class to find affordable housing. Blake’s recently announced the “record-breaking” $18,359 per square foot price for the penthouse unit in the new TwoTwoSix development in Sheung Wan and Cheung Kong’s multi-billion dollar autumn land purchases in Hung Hom and Homantin have most analysts predicting similar fees for the buildings that will eventually be on those sites. While Blake’s may be targeting the high-end buyer, it was believed Cheung Kong was not. The question has become one of whether there are only high-end buyers in Hong Kong now — and where the rest of us are going to live.
One factor widely considered the root of the recent price spikes are the scores of Mainland buyers snapping up properties in the city. Affluent Mainland purchases are swooping in and paying cash for everything and leaving behind an expensive market that not that many others in Hong Kong can afford, right? Alva To, head of consulting for Greater China at global property
consultant DTZ, says that’s a bit of a myth. [Their influence] is increasing, though China buyers are still not significant when compared with overall buyers … I would say in Hong Kong for every month we have a about 10 to 16,000 transactions. That means for the whole year there are about 160,000 transactions. Chinese buyers represent less than 10 percent of that.” PRC purchases did indeed swoop in to snap up units at the luxury Cullinan development when it went on sale, to the tune of 60 percent of total transactions, because, “They are significant in the luxury property sector, but for properties with value below $10 million they’re not. I agree that for some first-hand luxury projects, PRC buyers can make up 30 to 40 percent of buyers.”
The root causes of the matter is much more simple than that according to To. Limited supply, increasing demand, strong fundamentals and low interest rates make up the cocktail for rising prices. “We have relatively little supply. If you compare the years from 1991 to 1999, the average was 26,000 new units per year,” To admits. “The first five years of the 2000s were still okay, but here was no land supply over that time and so in the last few years we’ve had fewer than 10,000 units per year. It will increase a bit in the next few years, but not to the levels in the ’90s.” It doesn’t help matters that there’s also the developers’ penchant to load new projects (when the come) with what To calls gimmicks, trap potential buyers in small rooms late at night and ultimately distort the market. “That’s why some luxury units have 50 or 80 percent premiums on them.”
To sees the fundamentals as even more vital to the state of things. “Forget about the luxury sector for a bit. Property prices depend on economic fundamentals. I agree that to a certain extent speculation/ investment is a catalyst, but the basic driving force is still end-user demand; the general buyer,” he begins. Of these general buyers — including small, medium and luxury sector units — 90 percent are Hong Kong citizens. And their purchasing power depends on fundamentals: GDP growth, unemployment rates, interest rates. If you compare the affordability ratio now with its peak in 1996 or ’97, the affordability ratio is half of what it was. That means units were 100 percent more affordable than back then.”
And there’s the first chink in the ghetto armour. Interest rates are extremely low right now and so straight up prices are not an accurate indicator of how easy it is to buy. On top of that, prices are still lower than ’97 levels. Interest rates were hovering between 10 and 11 percent in ’96; now they’re less than 1 percent. Add to that mortgage instalments being about half of what they were in the late-90s and that the vast majority of payments going to the principal loan and you’ve got a lot of elements that create incentives to buy. So where is the idea that no one can coming from?
Not surprisingly housing has become something of a political football for various factions’, interest groups’ and legislators’ agendas — good, bad or indifferent. But to To’s mind, housing is most definitely not out of control, and home ownership for an average family or professional couple is not out of reach. It boils down to issues of aspiration and understanding one’s own — feasible — budget. “Take Tai Koo Shing. That’s regarded as a medium-high residential unit. I’m sure a professional couple could afford a unit in Tai Koo Shing, but they claim they ‘can’t’ … because they’re targeting the luxury sector,” To states. Someone’s buying, however, and many of those buyers are people that claim they can’t afford it. To points out the need for patience, for understanding one’s means and that small units in “secondary” locations are the way to start. Put simply, “If people can’t afford to buy, then why are there so many transactions every month?”
There’s no denying many new developments in Hong Kong are being positioned as “luxury” residences, which is also contributing to the idea there’s nothing out there for the average man or woman, but it’s not necessarily leading to ghetto conditions. To sees the market breaking down into two extremes: the relatively stable medium and small unit sector and the increasingly elite luxury sector. “The interaction between these two will be less and less. I agree the luxury sector is beyond affordability but the mass market is still okay … Hong Kong is a perfect market. For those who can’t afford the first hand unit — normally 30 to 50 percent higher than second hand units — just go over to the second hand market,” explains To.
Ultimately it’s not all doom and gloom and rescue by the HOS or something like it may be unnecessary. To believes HOS-type flats already exist in the private market, just off the beaten path. “If you talk just about product, never mind right or wrong, you can have an HOS product in a lot of different districts already. People just don’t’ want to go to those ‘remote’ areas. They expect the government to build HOS projects in good locations,” he states with a bit of a laugh. Areas like Central, TST, Causeway Bay and Repulse Bay, right? “But at the price of $3,000 per square foot.” We all want a ghetto like that.
Click here for more on home decorating
|
