Danger Zone

Poor air, no schools, high rents … is Hong Kong losing its edge?

We’ve been here before. It seems that every few months another “threat” to Hong Kong’s competitiveness within Asia rears its head. Simply floating the idea of a sales tax — a levy that nearly every place in the world has on some level — a few years back made retailers and some politicians apoplectic. It would kill tourism and hamper consumer spending among locals went the thinking.

Hong Kong has its troubles, but it remains a favourite destination for business: it’s transparent, business-friendly, has a strong infrastructure and is multi-lingual. Hong Kong is blessed with a free press (when it chooses to act on it), high standards of education, literacy and health care. In other words, everything the likes of Deutsche Bank or Time Warner could want for its staff.

But according to a statement released by Colliers International in June, a far more tangible threat is looming on the horizon. Rental rates are rising across the board, and in the luxury sector they’ve rose slightly over 4 percent in May alone. Similar numbers are being recorded in the serviced apartment sector, largely on the heels of economic recovery, buoyancy in the financial services industries and the resulting expansion and staffing increases. And it doesn’t appear to be slowing down: Colliers predicts luxury rental prices will go up 15 percent over the next 12 months.

This despite the consultancy’s concerns. “With record high rents, many corporations are feeling the pinch as it increases the expatriates’ cost of living in Hong Kong, which in turn weakens Hong Kong’s competitiveness and in some cases, deters the expatriate from accepting the move to Hong Kong. In addition, recent observed issues such as the worsening air quality in Hong Kong and insufficient international school places are also factors that affect expatriates’ willingness to move to Hong Kong,” Colliers stated.

Clara Chu, Colliers’ director or residential leasing, explains some of the impact that cocktail is having on relocations. “If [school admissions] keep on this way, what will happen is whole families will come later on. They’ll wait and wait for spots, which delays the whole process. We’ve also seen cases where a company transfers its executives to Singapore. The rest of the staff is still in Hong Kong, and the executives wind up commuting. Air pollution, to be honest, is beyond our control. [Prospective residents] will either accept it or not.”

Education Bureau statistics claim the SAR currently has 35,000 international school places. The renowned UK Harrow School begins classes in autumn 2012 and the Hong Kong Academy is moving to a new campus in 2013 and the school expects it will be able to accommodate a larger student body. But taken together those still represent a drop in the proverbial bucket and those extra places are still a year, at least, down the road.

Pollution is another issue altogether; remember the 2002 Lonely Planet cover with its barely visible Bank of China Tower? A lot of people do. Chu points out the general air quality is driving families a little farther away from the traditionally popular Central core (though it, Mid-Levels and TST remain popular among single transfer staff) to the relative clean of the outlying islands and the Gold Coast and Sai Kung in the New Territories.

The short version of that boils down to Hong Kong being expensive and dirty with no schools to put your children in. InvestHK is Hong Kong’s department of foreign direct investment, and its sole purpose is to assist overseas enterprises considering opening shop in Hong Kong do so, or aiding existing businesses with expansion. Its main page boldly states, “Smart companies are locating in Hong Kong,” and has link upon link with information detailing why it’s smart. Is InvestHK having trouble making a case these days?

“Concerns about high real estate prices and pollution are raised from time to time. High real estate prices can be a challenge, particularly for smaller companies and entrepreneurs from overseas who want to set up in Hong Kong,” says an InvestHK spokesperson. “But once they come to Hong Kong, see the options for themselves, and we explain to them that they don’t have to be located in the top-end office buildings in Central or high rent apartments in Mid-Levels and that a short commute on the MTR can reduce their overheads considerably, cost is rarely a barrier to them setting up here.” InvestHK went on to point out the SAR continues to be attractive location for overseas companies due to reasons that transcend, for business, rental rates. Based on its own 2010 research, those reasons include simple and low taxes, freedom of information, strong anti-corruption practices and political stability among others. “‘Availability and cost of business accommodation’ was ranked 19th and ‘Environmental quality’ 20th out of 22 factors,” the spokesperson finished.

An economic or property bust is unlikely in the future, but as Chu sums up, “the process is getting complicated. Sometimes it takes up to a year.” While centres like Singapore, Beijing (as if that were much cleaner) and Kuala Lumpur continue to make noise, but Chu doesn’t think the sky is falling just yet. “Hong Kong packages are better and taxes are low. We still have our advantages.” How long those advantages will be enough to keep offices open remains to be seen.