Fantasy or reality?

Land supply is a sensitive subject in Hong Kong, inspiring arguments almost as fiery as those about religion or politics. With newly built flats getting smaller yet again—Sun Hung Kai Properties sold flats in the luxury Cullinan West II as small as 270 square feet (which would be illegal in London, Sydney and New York) in September—and the government vowing new supply of nearly 500,000 units between now and 2027, the land for all these homes must come from somewhere. Hong Kong does have land, much of it admittedly undevelopable (the construction cost of building a working apartment block on the side of Victoria Peak would make prices even more untenable), but a little creativity among developers, the Development Bureau, Town Planning and the Urban Renewal Authority could go a long way in proving there’s no land shortage.

Hard Numbers

According to statistics by the United Nations and Moody’s Analytics, population growth in Hong Kong will slow to below 0.5% per year starting in roughly 2030—precisely the time frame for the government’s shaky Hong Kong 2030+ plan. For anyone that might point to foreign media bias or conspiracy, the Hong Kong Census and Statistics Department’s own projection report for 2017 to 2066 predicts the population will increase from the current (estimated) 7.4 million to 7.72 million in that time. For comparison: Brisbane will gain 125,000 in the next three years, the city of Toronto is projected to gain 975,000 residents by 2041, and venerable London is expected to add 774,000 residents by 2026—after Brexit. The world’s fastest growing cities are clustered in Africa and Asia—Lagos, Dar es Salaam, Fuzhou, Beihai, Chittagong, 
Surat—but Hong Kong is not one of them.

Much of the last round of the government’s land use policy was based on data that suggested the SAR would be home to nine million people by 2017, a target that’s been and gone. As such, the need for more housing may not be there in the near future, creating giant swaths of land for residential development sites or potential future ghost towns. Critics like Tom Yam, who focuses on reclamation in Lantau, point out reclamation is costly and slow, and will ultimately hold residences that are unnecessary. “There is a whole list of options they could explore, but those require leadership and political will,” said Yam late in 2017. “The East Lantau Metropolis project will cost $400 billion and take 30 years to complete. It has nothing to do with solving the housing problem right now. It’s not the same issue.”

Plenty of Land

Speak to real estate professionals and the majority will reply the same way when asked about Hong Kong’s land crunch: “Hong Kong has plenty of land.” (The Development Bureau didn’t reply to requests for comment.) Indeed, the city boasts approximately 100 closed schools, brownfield sites totalling 1,300 hectares, more than earmarked reclamation sites can provide (according to JLL), unused agricultural land, the Fanling golf course, more industrial spaces that could be repurposed in a new round of revitalisation schemes, and other urban renewal opportunities—that don’t threaten parks or what remaining heritage there is.

But also, brewing on the horizon: an office supply crunch. According to September research by JLL, the government has 10 years’ worth of commercial land supply, after which Hong Kong’s position as a regional business hub will be threatened. JLL’s managing director Joseph Tsang notes that while residential supply has dominated the news cycle, “The city’s office market is also experiencing similar issues, which is affecting the city’s position as a major business hub within Asia Pacific. The government needs to ramp up land supply for commercial office development if it is to ensure that Hong Kong continues to have room for businesses to grow and be competitive.” Over the past 20 years, vacancies have plummeted to just over 4% on average—under half of that are in prime districts—rents have skyrocketed, and the city continues to rely on sales rather than creative alternatives. “Hong Kong will lose its competitive edge as companies looking to enter or grow specific parts of their business, particularly technology research and development, will be stifled, in part, by high rent and little office space availability compared to alternatives,” warns Alex Barnes, head of markets at JLL. “Hong Kong is a long way behind Singapore in its volume of technology industry by size and nature. We can't catch up on volume of business growth, but we should at least be in the game for the sake of Hong Kong's future as a leading world city.”

As Thomas Lam, senior director and head of valuation and advisory at Knight Frank, sees it, it’s not about land as much as it’s about time. “Yes, there is [land], but there is not enough in the government’s future land supply plan that takes into consideration factors such as current demand and future population growth.” Population level accuracy aside, there is currently a housing supply problem and measures designed to unlock the 1.2 million-unit supply in the second-hand market have failed. “All these sites are being looked at and are triggering society-wide debates. But conversion work is not easy and it’s time consuming,” finishes Lam. Additionally, the issue of land sales’ importance to Hong Kong as a whole and an economy rooted heavily in property reduces the incentive to find creative, immediate solutions to the current housing shortfall.

Delta Dawning

Of course, Beijing’s One Belt One Road Initiative could play a major part in alleviating the perceived pressure for housing and offices. The abundance of space just past Lo Wu and Hong Kong’s ageing population make the Greater Bay Area an ideal way to ease housing demand here. Assuming expanding transit connections hold together, a young workforce would be able to commute. According to CBRE, the GBA is positioning itself to eventually be the largest city cluster of its kind in the world. The area would be akin to working in Manhattan and living across the river in New Jersey where rents and property prices are lower. The barrier to similar lifestyles here is that immigration, currency, and tax policies are not integrated, at least not yet. How much income tax to pay, and to who, complicates matters.

Nonetheless, “The Belt and Road Initiative and upcoming launch of large-scale infrastructure projects will expedite the flow of talent, capital and goods; lead to growth in high value-added industries; attract more corporations, and bring abundant opportunities to the real estate market,” theorises Marcos Chan, CBRE’s head of research, CBRE Hong Kong, southern China and Taiwan. CBRE is excited for the potential in the office, industrial and retail sectors which is underpinned by ease of travel that will boost retail, tertiary industry growth and demand for office space and a mobile talent pool. The increased demand for staff could bring the population numbers the government has based its housing supply on, but cross-border living could negate the need for all that reclamation.