The Effect of Cooling Measures on Real Estate Agencies

Tai Wai

One of my favourite activities in fall and winter is my Saturday morning runs along the Shing Mun River. I start at Tai Wai Station, and before the run, I usually have a light breakfast in a nearby restaurant, and take a look at the myriad of real estate agencies on Tsuen Nam Road.

I once wrote a piece about Tai Wai’s Tsuen Nam Road back in 2013, in which I likened the street to a thermometer for Hong Kong’s property market. In 2008, the U.S. started to use quantitative easing measures to save its economy from the brink of collapse. It indirectly brought more business to the real estate agencies in the neighbourhood, and most agencies offered high prices to rent shopfronts on the same street just to force out rivals. Luckily, at the time, pharmacies, currency exchanges centres, local snack stalls and other types of small businesses were still able to afford the increasingly expensive rent of Tsuen Nam Road, thanks to the large number of incoming mainland tourists. At one point, some real estate agencies even had to cut down on the number of branches. With a diversity of shops flourishing from tourism, Tsuen Nam Road was busy and vibrant, while landlords were collecting enviable amounts of rent every month.

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However, all good things must come to an end. In 2014, anti-mainlander protests took place all over Hong Kong and drove away countless mainland tourists — as well as their consumer power. As a result of the dwindling economy, a lot of shops on Tsuen Nam Road had to downsize, and some simply closed for good.

Today, real estate agencies have taken over Tsuen Nam Road. Last Saturday, I walked over there and saw over 10 agencies operating at varying scales — a few big agencies were the size of two or three regular shops. The battle was fought, and they had won. 

However, the reason behind their victory isn’t just Hong Kong’s booming economy. The key factor, in my opinion, is the government’s long-running string of cooling measures which backfired horribly and led to the continual decline of the second-hand property supply. The lack of supply then pushed home prices to skyrocket, which in turn increased commission earnings for real estate agencies to a degree that they offset the loss that agencies suffer from the decreasing number of sales. In the meantime, big agencies, who monopolise the primary market, make a fortune by offering high Loan-to-Value ratios for new developments, and thus turn around years of losses to profitability.

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