How will the Greater Bay Area Initiative affect HK's Market?

Greater Bay Area

Regulating and reshaping the real estate market is a tall order that sometimes comes with hefty political costs, as the government has to introduce housing policies that benefit the working and the middle class, but also meet the needs of the affluent. To reign in home prices, the U.S. interest hikes can be used as an example. If the market takes its natural course, rising financial costs will prompt property prices to fall, thus the government won’t become the target of blame.

There’s a consensus amongst most economists that the U.S. will lead the world into a year of interest rate hikes in 2018, and many of us are expecting home prices to drop across the board as the interest rate hiking cycle will soon be applied to Hong Kong. However, at the same time, Hongkongers are hoping for the success of new housing policies and a sustainable supply of government subsidised housing units. I agree that real estate is a cyclical market, and understand why those looking to buy their first home would want to wait till homes prices start dropping before entering the market to avoid huge losses. And I respect their view.

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This is a view held by many real estate investors; yet, there are still some who choose to enter the market at this current peak time. A new, large seaside development has caught the eye of many investors with its per-square-foot price standing at HK$50,000; this has raised eyebrows and many has questioned the investors’ judgement – and quite rightly so. Traditional wisdom tells us that location is the number one factor in determining property price, and even in the upscale areas of Hong Kong, luxury home prices are only set at around HK$30,000 per square foot. So why would anyone spend that much money on a new development in the middle of nowhere?

However, a wise friend of mine suggested that I expand my understanding of Hong Kong’s upscale areas and think more into the future. He points out that thanks to China’s new integration initiative, Hong Kong is on its way to become the centre of the entire Greater Bay Area, and being at the centre comes with its sky-high property prices. The construction of the Express Rail Link has turned West Kowloon into a newly minted luxury neighbourhood, and due to the many commercial and government developments taking place in Kowloon East, the district is becoming another up-and-coming upscale area. Even the relatively remote areas like Tuen Mun and Yuen Long are expected to become a basecamp for the legions of corporate bosses who will be crossing the Hong Kong-Shenzhen borders frequently after the completion of Hong Kong-Zhuhai-Macao Bridge. In addition, we are likely to see a lot of mainland professionals seeking career opportunities in Hong Kong and becoming Hong Kong citizens after residing in the city for seven years. These new Hongkongers would be less constrained to the existing concept of the “traditional” luxury areas, and more open to other options. Maybe for them, the New Territories and Lantau will be the future upscale districts of Hong Kong.

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