Hong Kong's Property Market: A Journey Through Time
How has the property market been performing since the handover?
In 1997, the biggest problem was that there was poor preparation for the confiscation. At the time, I, too faced much pressure because of over "borrowing". I decided to keep to ten flats and shops in Tuen Mun. It was a success, but since then many people are afraid the same will happen in the future. In fact, from 2009 to now, there have been opportunities for making a fortune. Many people buy a second home and then go from two to four. The loan-todeposit ratio is very low because the interest rate is flat, which creates a healthy development of the property market. The property market today is still very stable and performs better than bonds and stocks, even in the face of the Federal Reserve reducing its balance sheet.
What do you feel are the most successful and unsuccessful housing policies since 1997?
The most successful one has to be the Tenants Purchase Scheme for public housing. This policy has enabled many people to own flats, and the return is rather high as well. On the other hand, the government has also shed its responsibility. Of course, this has led to management problems, but is the easiest way in solving the housing problem. The most unsuccessful policy, of course, is the Land Application List System. If developers do not submit offers and trigger public auctions, there will be no supply. In such cases, it seems that the government has handed over the right of land supply to the developers and given up the power of land distribution. It is too stupid to even contemplate.
Is buying property right now still a sound investment?
The present is still the best time to buy. There are many reasons for purchasing a flat but the most important one is that many government bodies are continually increasing the supply of currency and some even over-issue their currency to solve financial problems. It is not the construction cost but the circulation of money that supports the price of a property. At present, the easiest investment for the general public to get into is real estate, and the management cost is also low.
What is your impression of squarefoot?
To me, squarefoot is a high-end, multi-national and multi-platform property website with great potential. Property is a valuable asset so the site has to be up-market, professional and conscientious. The properties featured and their related interviews in squarefoot magazine have successfully gathered a group of followers among the movers and shakers within the industry.
How has the real estate landscape in Hong Kong changed since 1997?
In 1997 of course, Hong Kong hit the first major economic crisis going through Asia with the Thai baht crisis the day after the handover. Since 1997, we've had three massive downturns—stock market collapse in the states, the IT stock market collapse and SARS in 2003—that has affected the stock and real estate market, and the government responded to that by trying to protect property owners.
The government acted by stopping land sales, and having done that, they also stopped the pipelining of land which potentially could have sold. On top of that, after 1997, we saw a trend of giving up on housing estates—public housing sites—and using that land for private developments.
We also see a lot of capital out of China that is driving price increases again in many other global cities. Hong Kong is at the forefront for that; we are the first stop for that money. As we've stopped pipelining land, prices therefore have gone up even higher. As a result, the growth of prices in Hong Kong have gone beyond that of any major city.
Which government policies in the past have most affected Hong Kong and shaped the property market into the way it is now?
The halting of pipelining was a major bump, but this has slowly re-established. We have now arrived back at a point where we are starting to have reasonable land supply, however there is catch up to be done. Transaction volumes are fairly low, especially in the secondary market. There are high prices and high demands, and lowered prices offered, but very few transactions.
It's very predictable what's going to happen now: a few bumps, and we're going to be on a downturn in prices. That will ultimately pull Hong Kong back to where everybody else is in the world. Successful cities are expensive, but now even more so because of quantitative easing and the Chinese money that's going around. We're going to come back down, but we're still going to be a significantly expensive city.
Of the land supply options given by the government, which do you think has the highest chance of working?
The focus should be on investing and fixing up the New Territories. Economically, the New Territories is where the growth is. Fixing up the New Territories is not exactly the government's idea of PPP (public-private partnership); it suggests that developers themselves can bring their land to the government with the request to develop it. It should be left up to developers to drive the process. So far, it's the government that comes up with new town plans to derive the process from; they just want to resume all the land and have been very rigid with their decisions, with little interest in moving roads or accommodating private land ownership. They've taken away all the potential initiatives of the landowners regarding their sites. In the process, there's very little working together or capacity for negotiation. However, people should be part of how you implement new town plans.
Military sites hold good potential too and a lot of it is underutilised. Now that we're part of China, they've got lots of land and facilities throughout, we're just a little bubble. There's a firing range in Tuen Mun where they sometimes go out and shoot rockets from aircrafts. Why would you do that right next to Tuen Mun? It's like having a firing range right in the middle of Shanghai. You don't do it in the middle of town with rocket launchers hanging off helicopters. So, the underutilised military land should be a focus.
Lastly, definitely do not touch the country parks! It's taken efforts since World War II; the boundaries had been very carefully considered with many studies, based on topography, ecology, etc. To now say that there's a piece of land that's not massively valuable and just change the boundary… that's just wrong. It's not an issue of whether there's bare rock in a country park, the issue is you have a special asset that was very carefully considered and created. The government using country parks will always be the easiest way. There's no need for reclamation, no pipes underground, and they own it completely. Bureaucratically and engineering-wise, it is absolutely the easiest way out.
How would urban design better the lives of Hongkongers when there already isn’t enough land to live on?
The role of urban design in the dense built-up areas is small interventions to make it more liveable. Walkability is one of the prime guides in figuring this out—how do we make it easier for people to walk around the city? The multi-layered pedestrian environment in Central works well; people are travelling below ground, on the street and above ground. It was done right because the opportunities that are there at the elevated level started with a similar standard to those on the ground. Exchange Square in Central allows you to sit outside, and there's art, greenery; they become public spaces. That's what we need to work on in all the urban areas; we need interventions so these spaces become more enjoyable in the public realm.
As for rural areas, 60% of roads in the New Territories have been built organically without any standards: no footpaths, no street lights; heavy trucks use these roads that are unsafe, chaotic and not properly maintained; open refuse collection points where wild boars rip things up every night; a lack of sewer systems and proper septic tanks. So, in terms of urban design, the NT is in poor condition. Urban design is an investment to improve all of that.
In new towns, working with greenfield, good quality urban design means an urban area that is pleasant and enjoyable to hang out and to live. People should be able to foster relationships. It doesn't work that way if it's straight from your home into a shopping mall; that kind of development model that we continue to see in new towns needs to be rethought. They need a much finer footprint, a more outdoors-oriented ground level, more diverse ownership of the street. For a sense of community, you need to allow for a much more organic environment to develop.
It's a hard battle and we don't have enough urban design control over the outcomes. Right now, there's broad-planning engineering of the infrastructure, while urban design is an afterthought, when it really should be the other way around. It's a pity because 20 years down the line, people will say, “Why the hell did you guys do that!?”
How do you think the property market will have changed 10 years from now?
I don't think it will change. We're going to be more in line with what New York and London are going to do, if we just get the pipeline restored to a proper level. I don't think there is going to be any change to the current circumstances; Hong Kong is a successful city where people want to live because it's incredibly efficient. They want to do business here in the financial centre of Asia. And because of all this, property prices will always trend on the high side. Our boundary with the mainland is unique, and it's going to be a political decision as to how many people can immigrate. I think not much will have changed in ten years; Hong Kong will stay that peculiar special place.
How has the real estate landscape changed since 1997?
Our JLL research tells us that the mass residential capital value in Hong Kong has increased by 61% while luxury capital value has recorded a 105% growth since the peak in 1997. Average residential supply amounted to 25,000 units per year between 1997 and 2006. However, the annual supply has dropped by 52% to only 12,000 units between 2007 and 2017. Average flat size also dropped dramatically from 867 square foot gross area in 1997 to 628 in 2017.
According to JLL'S forecast, we expect supply to increase to an average of 21,000 units per year from 2018 to 2022; this is nonetheless still insufficient to solve the shortage problem. Since 2010, the government has implemented a number of cooling measures to suppress demand, including lowering of Loan-to-value ratios, increasing Stamp Duty and introduction of Special Stamp Duty and Buyer's Stamp Duty. With an imbalance between growth in salaries and growth in home prices, it is now much more difficult for buyers to get onto the housing ladder. The price-to-income ratio has surged from 11% in Q4 1997 to 17% in 2Q18.
Transaction volume has recorded a drop from 22,960 to 6,710 since its peak in 1997, but the buying sentiment remains strong which is supported by sustained demand and wellreceived primary launches in the market.
What are the investment trends in expats coming to Hong Kong? How have they evolved over the years?
The government introduced Buyer's Stamp Duty in 2012, which is chargeable for transactions where the purchaser is a non-hong Kong permanent resident. This has raised the threshold for foreign expats purchasing a home in Hong Kong. The government only started reporting the percentage of residential transactions that involved BSD which can be used as a proxy for the share of non-hong Kong buyers since April 2014. The percentage has dropped slightly from 5.2% to 5.1% as of Q2 2018.
How have trends for expats looking to buy and rent changed over the years?
Over the years, many long-term expats have purchased their own properties for end use to avoid high rental costs, or invested in the property to take advantage of the profitable investment market. However, in more recent years, purchasing property as a non-pr in Hong Kong has become increasingly costly as the government has brought in additional taxes and measures to try curb rising sales prices and they are now having to weigh up at what point the high property prices and additional tax measures negate the financial benefits of purchasing over leasing property.
What advice would you give to expats on renting, buying and investing in properties in Hong Kong?
For a lot of newcomers, it takes some getting used to, adjusting to the changes in living standards in Hong Kong compared to their own countries. With space at a premium and quality and finishes sometimes different compared to other cities, expats need to come to terms with compromises and working out their own priorities—what are your “must-haves”, “nice-to-haves” and “can manage withouts”.
I always advise my new clients about the many differences we face here when renting apartments, including the physical features of the accommodation as well as the contracts and restrictions which can create some concerns.
Faced with fierce competition for the best properties, tenants are not always in the strongest bargaining positions. For this reason, it's important for tenants to find a good agent with trusted relationships with landlords, so they can negotiate the best deals and ensure that they're being given the best advice.
One piece of advice I would give? Move fast! If you do find a property you like, make an offer quickly, as quality properties are snapped up very quickly. Hong Kong is unique in this regard.
What kind of properties are most popular among expats? What do they look for?
Obviously, preferences vary from person to person, and their search criteria can be determined by a number of factors, such as family size, lifestyle, personal tastes, work and school locations and many others.
It is very difficult to generalise but there is one thing which is becoming more and more important for landlords to consider when trying to sell or lease their apartments: presentation! If an apartment is well presented and clean, and the client is able to visualise themselves in that space it holds a lot more appeal than a property which requires a lot of renovation or refurbishment.
Two of the most important criteria for expats are schooling and a place to live. For families with children, often the search for a suitable school will take priority over the home search as this will in turn determine location for their new home.
Lawrance Wong President of Many Wells Property Agent Limited 汪敦敬：祥益地產創辦人
Paul Zimmerman Southern District Councillor and CEO of Designing Hong Kong 司馬文：南區區議員，創建香港行政總裁
Laurie Lankester Director, Residential Leasing and Relocations Services of JLL 仲量聯行住宅租賃及移居顧問服務部聯席董事