It may feel like the property world revolves around us here in Hong Kong — and the SAR is indeed one of the globe’s most volatile markets — but things evolved and moved and new policy was introduced in all corners. Many of the biggest moves should have minimal impact on us here, but it’s hard to predict when something might come back to bite.
The World in London
Taxes and cooling measures are always a concern and 2014 had its share of action as well as threats. With elections looming (at press time) in Taiwan and for the UK in early 2015, property policy and affordability were primed to be political hot potatoes.
The UK regularly makes headlines, either for record appreciation or for its perpetual lack of affordable housing, and for Capital Gains Tax for non-residents coming into force next year at 18 to 28 percent on gains after April 2015. The tax actually puts foreign owners on the same footing as UK residents selling homes that aren’t their primary residence. There will be an exemption for owners who spend 90 nights in the home, off-plan properties will be classified as completed homes, and institutional investors are exempt. The government expects to raise £125 million (HK$1.5 billion) in three years. Perhaps most notable, however, was the sudden and immediate reform of stamp duties in early December. The duty will now be applied in bands (like income tax) at 2, 5 and 10 percent starting at £125,000 and 12 percent on everything over £1.5 million. Rumblings have begun that the luxury sector will see its transaction volume drop in the short term.
Despite the taxes, London’s investment market is expected to remain strong, with approximately 30 percent growth over the next five years. But that growth is likely to have to follow an election-induced slowdown in 2015 — and the general slowdown in prime residences globally. According to Knight Frank’s Prime Global Cities Index, prime residential prices grew only 0.2 percent in the last quarter of 2014. “This moderate level of price growth is partly attributable to the fact that the third quarter, for much of the world, is dominated by the summer holiday season which often sees slower sales activity reducing the pressure on prices,’ Knight Frank stated, though prime prices still fall short over 2013. Other factors for the dip include potential tightening of monetary policy in the US, continued cooling measures in key Asian cities and negative economic indicators from Europe. Tokyo and Jakarta performed best, though the latter also recorded the quickest drop.
As private wealth grows, so too does the need for someplace safe to hide it. London and New York are prime investments spots — they’re transparent, in solid financial markets where people want to live — but they also have their demands in the form of taxes. Islands have always been popular with high net worth individuals precisely because taxes are often low or non-existent. They’re called tax havens for a reason.
In November Candy & Candy, Savills World Research and Deutsche Asset & Wealth Management released the annual Candy GPS Report detailing the 20 strongest investment island locations for HNWIs. Bermuda took top spot this year, with prices averaging US$4 million (HK$31 million) and the Caribbean dominated the list, with the Bahamas, British Virgin Islands and Antigua also in the top five. Islands close to wealth-generating markets like the US, with good infrastructure and transport links were strongest. Additionally, developers are now looking to combine philanthropy and luxury, often in islands looking to boost wonky economies through property.
In a statement, Savills’ Yolande Barnes noted, “The global UHNW population is forecast to grow by 22 percent by 2018, which will fuel demand for alternative real estate, particularly with a boost from Asia, the region where it is set to grow fastest. The lower end of the luxury island market is also set to explode as young money buys into ultra prime property and resorts on the world’s most sociable islands.’
Lastly, as the world’s population increasingly concentrates in its cities, office markets everywhere experienced some degree of growth. Once again, Tokyo was the star, with Knight Frank reporting the city registered the highest rental growth (6.4 percent) in Asia, and its premium office market saw the region’s and the quarter’s best performance. Cushman & Wakefield’s Global Office Forecast 2015-2016 reports office markets overall were in better shape heading into 2015 than they were a year earlier. “The economic recovery in the United States, evidenced by stronger job growth, is finally translating into noticeable improvements in office leasing fundamentals. This is particularly the case in the class A segment of urban markets,’ said C&W.
If there was a dark horse star it was probably the industrial sector, where e-commerce is flexing its muscles in relation to shopping mall performance and industrial property. At the end of 2013, London (Heathrow), Singapore, Geneva, Minsk and Sydney were among the best performing warehouse markets in the world — in addition to standards like Hong Kong, Singapore and Tokyo. Consumer demand was underpinning Beijing’s continued growth and Shanghai’s emergence as a logistics hub. It is a trend that continued in 2014, and as the world becomes increasingly wired and consumer patterns shift should carry on.