Property

Best and worst of Hong Kong 2017

Hong Kong

"It was the best of times, it was the worst of times,” seems somehow insubstantial as a way of describing Hong Kong’s property market in any year, though Dickens’ subsequent crack about it also being an age of both wisdom and foolishness rings true — even if he was referring to two cities. With a study of contrasts in mind, we reflect on the best and worst — the wise and the foolish — in SAR real estate this past year. 

Best: Higher office demand 

On the commercial front, office leasing was strong in the city’s core business districts in 2017, and that’s a good sign for Hong Kong’s economy overall; new homeowners with massive LTV mortgage financing as provided by local developers in the primary sector will appreciate that. According to Knight Frank, office vacancies in prime Central towers is nearly at an all-time low (1.7%), and “With analysts recently revising up the medium-term economic growth forecast, the vibrant business environment is expected to continue to create office demand in the core areas,” said David Ji, director and head of valuation and consultancy, Greater China,at Knight Frank. Start-up and SME-friendly co-working space is driving much of the leasing.

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Worst: Retail identity crisis

Though things are rosy in the office sector, crucial retail activity is still in the doldrums. While there was an uptick in mainland visitor arrivals in 2017, strong retail sales since March, and Hong Kong stores apparently weathering the e-commerce storm, prime street shop rents dropped a whopping 40% from the 2014 tenancy cycle, and that’s going to bleed into residential area retailing. Ji analyses, “While we have seen retail sales survive the trough and adapt to the new normal, featuring more mid-priced products, retail shops will continue to face increasing challenges from online platforms, as they seek a new identity.”

Best: The court sides with the environment   

Hong Kong’s environment is in a constant state of war, but November saw the High Court come to the rescue. Justice Thomas Au sided with an environmental petition to block development of village houses in three country parks (in enclaves in Sai Kung and Plover Cove Country Parks), citing the Town Planning Board’s incorrect map when it approved the houses in 2014. He also pointed out that the Board didn’t consider the indigenous villagers’ real needs, and passed the decision on to the Executive Council, citing fruit of the poisoned tree or illegality. 

Worst: Digging into the parks

In January, then Chief Executive CY Leung announced the government’s environmental departments were to start identifying which parts of the country parks could be developed for public housing — as if not earmarking it for luxury homes made the idea less grotesque. Needless to say, WWF-Hong Kong was not pleased, stating the organisation, “Believes that sourcing land for housing should not be the duty of any environmental department,” and that perhaps the focus should be on the 1,200 hectares of brownfield and 150 derelict schools as land alternatives. The park directive is particularly egregious in light of the fact that the government’s own data, from the Census and Statistics Department, indicates the population to 2049 won’t demand any extra housing.


Park

Best: Back to school

Some good news for those looking for international school spaces. The UK-based Malvern College announced its Hong Kong campus, currently under construction near Tai Po and the Science Park, would be open for classes in autumn 2018, bringing with it some much needed school slots. For the younger ones, historic Shrewsbury International School opens the doors to its primary school next year too, joining the French International School’s new campus in Tseung Kwan O. Montessori School is adding a new school in Sai Kung, the German Swiss International School opened its new campus on The Peak, and Stamford American School just opened in Ho Man Tin. Expect vacancies in the catchment areas of those schools to drop sooner rather than later.

Worst: Carrie Lam’s Policy Address

Though WWF-Hong Kong welcomed the eventual brownfield study, new Chief Executive Carrie Lam’s inaugural Policy Address was environmentally toothless, prompting WWF-Hong Kong to comment that it “contained almost no new environmental initiatives”. Worse still, Lam’s housing policy and her Starter Homes scheme only benefited those who could already afford a private flat. As JLL managing director Joseph Tsang sees it, “The problem with the private housing market is expensive housing prices. Unless the Starter Homes are sold at a discount, the scheme won’t help people to buy their first home. The government has to be cautious in determining the income cap. Those with salaries even fractionally above the cap will find themselves ineligible for the scheme and be forced to pay the full, higher market property prices.” Additionally, simply finding a place to live is increasingly challenging, and Tsang thinks it’s time public housing supply picked up in order to cut down the current four-year wait. “[Government] should use the Anderson Road [site] for public housing development.”

Best: Supply boom

For the past few years, Hong Kong has been averaging fewer than 13,000 new homes per year, down from a high of nearly 30,000 between 1998 and 2004. But if you choose to trust the government’s projections for needs, new flat completions are set to rise to an average of 20,000 per year from 2018 to 2022 as developers pick up the launch pace. A word of caution, however: prices are still unlikely to correct. 

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Worst: MPF funds for down payments

Instead of tackling the issues underlying skyrocketing housing prices, the government has proposed allowing prospective, mostly first-time buyers to withdraw funds from MPF savings to use against property purchases. It’s an old idea, and one that could make Lam seem less out of touch with her subjects. And though property appreciates at much better rates than MPF stock, making it a better investment, property writer Chris Dillon is calling foul. “Hong Kong workers continue to be ripped-off by the high fees charged by MPF investment vehicles, in what is a poorly disguised corporate welfare scheme. Putting that money into a single-asset retirement strategy — a Hong Kong apartment — adds insult to injury. Better to shut down the entire MPF industry and allow workers to self-manage investments in exchange-traded funds that charge one-tenth of what the MPF providers do.”

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