As active and unpredictable as Hong Kong’s property market is during any given year, 2018 was particularly exciting. Record sales transactions for office towers, new benchmarks in Southside residential property, ongoing cooling measures and penalties and macroeconomics were all factors in the real estate equation this year. There were highs, there were lows, but very rarely was there nothing to talk about.
It may not be perfect, and it may not solve the housing shortage any time soon, but the vacancy tax, levied at 200% of rates for unsold flats in new developments, and 20% minimum launch thresholds are baby steps in the right direction, and have the potential to stabilise prices simply for increasing available stock. It’s a good move particularly for young buyers. “It’s wrong to hold back so much stock and manipulate the market,” theorises Victoria Allan at Habitat Properties. “It’s not healthy for end-users at the lower end of the market and they need to make things more affordable. Every market in the world is dealing with this right now, but we’re unique in how much stock developers control.”
Reclamation a go
Of course the root of the housing crunch is in land supply—or lack of it—and that debate is set to rage on after nine months of public consultations unearthed no consensus—with the exception that massive reclamation off the coast of Lantau is not the answer. Simon Smith, head of research and consultancy at Savills, concedes the plans are ambitious as well as pricey, but “I’m not sure there aren’t other solutions out there. At the very least, there should have been broader consultation and of course, we are still waiting to hear what the Taskforce on Land Supply will propose.”
Daniel Shih, head of research at Colliers International, Hong Kong, agrees, adding that tight land supply is starting to leech into commercial supply, which could threaten the city’s economic performance. “Although the government’s proposed ‘Lantau Tomorrow Vision’ will provide up to 1,700 hectares of a new artificial island, the short- to medium-term shortage problem will not go away,” he says. “The Chief Executive should reassess the current implementation mechanism to expedite new land supply.” WWF-Hong Kong also chimed in, stating CE Carrie Lam’s fixation on landfill is misguided. “We are deeply disappointed with Ms. Lam’s reclamation proposal,” said WWF’s assistant director of Oceans Conservation, Samantha Lee, in a statement following Lam’s second Policy Address. “There is no justification to increase the reclamation area to 1,700 hectares … The loss of habitat and change of hydrology will be permanent, and bring forth a huge negative impact on marine ecology and the livelihoods of Hong Kong fishermen. The damage from reclamation is irreversible and the health of our sea will, unfortunately, further deteriorate.”
Admittedly, the landfill scheme won’t show dividends (or disaster) for many decades yet, and as Savills’ Smith adds, “in its defence, Hong Kong is no stranger to visionary infrastructure projects.”
Office take-up still strong
Dwindling supply aside, net take-up in the office sector stayed strong in 2018, with occupiers moving into a record 2.9 million square feet in the first three quarters of the year. That suggests strong business growth despite Central rents being the highest in the world. Decentralisation is helping the overall growth and should continue in the immediate future as financially smart space remains high on MNC priority lists and infrastructure brings non-traditional hubs closer to the CBD every day.
Weak market sentiment
Put this at the feet of the Hang Seng Index. Very few cities have a stock market as closely linked to property as Hong Kong does, but that comes with its own risks. “Over the year, the volatile stock market continued to have a detrimental impact on Hong Kong’s property market, with sentiment of both buyers and developers weakening,” notes Knight Frank’s David Ji, director, head of research and consultancy, Greater China. Flailing fundamentals in China and ongoing trade tensions with the US has led to contraction in the housing market.
Blockchain and proptech step up
That said, property technology—or proptech—has brought new energy to the sector and has gained enough traction in recent years to finally get noticed. “In Hong Kong, more property companies are keen to adopt proptech solutions and utilise blockchain technology to facilitate operational efficiency and drive their business,” says Ji. Blockchain’s transparency and ability to have data easily verified—and nearly impossible to alter—have made it the go-to public ledger for cryptocurrencies, and banks are investigating ways to increase efficiency and reduce costs.
Back to retailing square one
The crucial retail sector seemed to be turning a corner this time last year, but a wonky stock market (again), a trade war (again) and rising interest rates have put a damper on consumer spending, and that doesn’t include a strong dollar that’s curbing mainland tourist spending. “The new High Speed Rail and Hong Kong-Zhuhai-Macau Bridge link will provide a temporary boost to numbers but the underlying picture looks less rosy for now,” says Savills’ Smith.
The unsung hero of the property market this year has been the steady growth and strong performance of the industrial sector. Gaining 10% in the first three quarters of 2018—and 300% since 2009—revitalisations have brought vitality to the industrial market and made it an investor favourite for its relative value: industrial properties can be found for just shy of $6,000 per square foot, compared to just over $21,000 for offices.