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Rabbit Run
Looking at Hong Kong’s 2011 Year of the Rabbit
| Text : Elizabeth Kerr | Photo : Cato Sze |
We all know what 2010 looked like in Hong Kong property sector: low interest rates, high demand, limited supply, massive transaction volume and rising prices. Well guess what? It looks like 2011 is going to be a lot of the same.
Colliers International stated in a release in December that the commercial sector would lead Hong Kong’s growth in 2011, with ground floor retail space — for rent or sale — in Central, Mongkok, Causeway Bay and Tsim Sha Tsui at the head of the pack, followed by office property. That news, however, doesn’t preclude an upswing across the board. Colliers is forecasting a 20 percent surge in the core retail rentals, 17 percent in offices and 10 percent each in the industrial and luxury residential arenas. That sounds an awful lot like last year’s news. On top of that, commercial investment will continue on its strong course. In Colliers’ statement, executive director of investment services for Asia Antonio Wu said, “In 2011, the anticipation of low interest rates and increasing inflation pressure will continue to favour capital flowing into the property investment market. The buying drive is expected to come from the local and Mainland Chinese investors, and the market focus is anticipated on the strata-title offices.” In luxury residential, Ricky Poon, Colliers’ executive director for residential sales stated, “In the long term, the luxury residential market remains positive with the support of the low interest rate, limited supply and ample liquidity in the market. Thus, we project that both the residential prices and rentals continue to increase 8 percent and 10 percent, respectively, in the next 12 months.” This despite anti-speculation measures introduced at the end of last year.
They’re not alone. Jones Lang LaSalle and DTZ have been making similar predictions, as are the likes of Centaline and Ricacorp in the mass market. Residential sales may have taken a moderate hit on the heels of the changes in the stamp duty, but in turn that’s created a more diverse rental market. So is a rental glut on the way? “No, I don’t think so. There’s a huge influx of expatriates in the higher end of the market and serviced apartments are playing a big part in rentals,” notes Stella Abraham, Senior Analyst at CBRE Residential.
Abraham reasons that rentals will remain strong despite there being slightly more stock available, largely due to the fact that there are as many types of rentals as there are types of renters. As far as sales are concerned, Abraham concurs with prevailing wisdom. Strong economic indicators and low interest rates — though some believe rates are set to go up — are going to keep the market in 2011 pretty much where it was in ’10. “The impact of interest rates rising won’t be huge. It’s not going from 5.5 to, say, 11 percent like it could in the US,” she notes.
But what about that troublesome stamp duty, the one blamed for the drastic cool down at the end of last year. As Abraham sees it, that fee isn’t going to scare away serious buyers in any segment of the market. “It’s an interesting mental issue because it’s a ‘stamp duty’… a tax. They should change the word,” Abraham laughs of the government’s weak marketing skills and the duty’s ability to stop sales cold. “You’re always going to have some people that [will be influenced by added fees]. But at the high end of the market, people are paying so much for property they don’t care. These are Mainland investors, foreign investors with a lot of money. They don’t care.”
The perception of the state of the Hong Kong market is one of the more pressing factors for 2011. Contrary to what media may be screaming, the sky is not falling. The knee-jerk reactions of late last year are short term, and the kind of over-caution that defined the last quarter won’t linger in a city where the market fundamentals are strong. Buying property is as emotional as it is financial, and Abraham points out that there was more going on in December than simply changes in tax regulations. “I think it’s also the time of year. Things quieten down. It’s Christmas, Chinese New Year, ‘We’re going to close up shop.’ Then we’ll all come back and prices will go crazy. It’s also reporting. I can read a newspaper that claims the stamp duty is slowing sales and according to the same newspaper the next day, it’s not. Everybody wants to read about property.”
Abraham is confident that sales volume will bounce back in the new year if for no other reason than simple demand for homes, one of the few constants in Hong Kong’s real estate industry. “I think everyone one will calm down and start buying again. There will always be people who are just looking, waiting to buy when the market hits the bottom. Well, you don’t know you’ve hit the bottom until prices rise again; until you’re past it.”
So all that adds up to 2011 being a near repeat of 2010. “I think so. The government is threatening to do … something. We’ll see what happens. The stamp duty reaction is going to wear off. Is there a bubble coming? Not yet, but someone said there was a bubble coming at the beginning of 2010, and I know people that didn’t buy in 2010 and wish they had.” Abraham sums up her forecast with an anecdote about acquaintances that purchased a $13 million property in Pok Fu Lam during SARS despite being warned against investing in Hong Kong. “They sold it recently for $40 million. We had a market dip in 1997 and again in 2003. Will it dip again? Probably. But it will always bounce back.”
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