Talk of The Town	Back to index

Future Shock

On August 17, Cheung Kong Holdings snapped up two pieces of land at a government sale and spent almost $8 billion dollars doing it ($7.61 billion to be exact). The sites in Ho Man Tin (sold for $4.1 billion) and Hung Hom Bay ($3.51 billion) went for well above the estimates and analysts are already theorising about flat prices in the eventual developments, with most believing prices are going to hover between $15,000 and $20,000 per square foot. Cheung Kong clearly expects to make some serious profit and at the press conference following the auction, Cheung Kong deputy chair Victor Li pointed out that the early estimators were undervaluing the sites given their proximity to ocean views and green space.


So what does this mean for most Hong Kong property buyers? The government’s proposals to cool the overheated market (by increasing land supply and tightening lending regulations among others) introduced a whopping five days earlier will clearly have minimal impact. Vendors in Hung Hom increased their asking prices in the area by 10 percent and in Ho Man Tin they upped prices by 5 percent … the next day. The same thing happened last month following a prime Peak site auction. Who knows what will happen when the government auctions off sites in Kowloon Tong, Fanling, Chai Wan and Hung Hom in the coming weeks.

Referring to the combined punch of the cooling policies and Cheung Kong’s shopping spree, Ricky Poon, Executive Director of Residential Sales at Colliers International admits, “This will impact on those people who are not cash buyers. They have money, and they want to buy, but they need a mortgage too.” Poon describes how many buyers snapping up private units in new developments these days are Mainland purchasers who pay cash for their properties but market activity is likely to dip as buyers play a game of wait-and-see. Cheung Kong could be looking at those purchasing patterns. Even taking into consideration the total costs of developing the two sites, Poon theorises, “In two to three years, [Cheung Kong] can charge $16-18,000 per square foot, and that means their profit is already 50 to 80 percent.”

But profits may not come from local buyers. “I agree middle class and first-time buyers are going to feel the pinch. But I don’t agree the government should increase Housing Authority buildings,” says Poon. Prices have been increasing steadily in the wake of the 2008 global economic meltdown, when, “Prices dropped by about 40 percent. But last year prices rebounded by about 30 to 35 percent, some even more. For the first seven months of this year, prices have gone up 10 percent. Some of the prices are higher than ’97,” Poon states, citing Shatin City One as an example.

So where are the majority of buyers to go. Where are the $2 million starter homes? This is a good question,” he starts. “But it’s always location first. ‘I want to live in Central. I want to live on the Peak.’ Of course you don’t even think about it. But go to Kennedy Town, Shau Kei Wan, Taikoo Shing, those areas further down, you can still find homes under $2 million. It’s not impossible to enter the market.”


Barring another financial sector catastrophe, Poon sees Hong Kong as stable for the short term but, “We’ll have a clearer picture for new supply in the next two or three years. There could be corrections in prices after the next twelve months, but for the next six to twelve prices are going to be very stable. They may go up a bit … across the board.” Recovering economies, a stronger Euro and soft but steady growth are signs of constancy that may halt prices where they are. For the most part, he’s not too worried. “Interest rates are still low. When interest rates go up, that could be signal. Then you have to be careful. If the mortgage ratio is over 50 percent that’s a warning signal. I’m not saying there will be a bubble but there will be corrections.”