Hong Kong

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Opus Hong Kong – home of the most expensive apartment in Asia

The world’s second most expensive apartment isn’t in New York or Paris or Berlin, or even Tokyo.  It’s in Hong Kong, where Asia’s priciest living space and the second most costly in the world, after One Hyde Park, in London has gone on sale.  The apartment, a 6,755 square foot unit at the 12-unit Opus building in downtown Hong Kong, has sold for HK$430m – US$55m.  That’s a price of US$8, 130 per square foot.

Obviously, that’s a huge price per square foot and a huge apartment too.  But Hong Kong is an expensive place to live even if you’re not shopping for an Opus-style apartment.  The average Hong Kong apartment is 600 square feet, a much more modest proposal.  But buyers can still expect to pay HK$4.5 million for such a place – US$580, 135.  Compare that with Brooklyn heights, now one of the world’s stiffer-priced neighbourhoods, where New York centred blog Curbed.com found one couple paying US$1500 a month for a 240 square foot apartment, and it doesn’t seem so bad.  But Hong Kong’s prices are for family homes and the figure is an average across the city: New Yorkers willing to live in Ridgewood, or East Williamsburg, can hope for significantly lower rents.

But both major cities face similar pressures.  As a result of being key areas in their countries’ economies, there’s a premium on living in them.  The average Honk Kong income is HK$20, 200 pcm.  For two working Hong Kong residents to buy an apartment, then, they’d have to spend 18.6 years’ worth of salary, without spending a penny on anything else.  That’s in clear contrast to the rest of Asia, where prices are typically much lower.  Singapore households are typically looking at between three and seven years to pay off their property purchases , less than half Hong Kong levels.  Yet in the US, both would be considered out of reach: affordable’ there means three years or less.

As the housing market across Europe and American crashed hard after 2008, Hong Kong experienced the opposite.  Prices began climbing in the first quarter of 2009, quickly passed the levels of 1997, the previous market peak, and have risen quarter on quarter since then; a record every three months.  But incomes have not kept pace.  Average pay has risen by 15% in the same period as property prices have shot up 85%.  The result has been a ‘sandwich class,’ earning between HK$20, 000 and HK$30, 000; for these people to enter the property market, prices would have to fall by between 19% and 30%, according to Li Xueying Asia News Network (MCT).

Hong Kong faces a housing crisis in the making.  But it’s less like the US of 2008, where prices fell vertiginously, and more like the US now, where prices are rising but wages aren’t.  Some attribute this to mainland Chinese buying Hong Kong property: Mainlanders account for 40% of luxury home sales but only 10% of total home sales, and Hong Kong’s Chief Executive Leung Chun Ying has announced a law to bar foreigners from buying private housing, with the Hong Kong government in the process of figuring out the details.

Mr. Leung is thought to have made the move partly to deflect criticism from his rivals for having failed to combat the housing shortage since his election two months ago: however, the first result of his action has been a tumble in the Hong Kong stock market.  Meanwhile, academics have criticised the vagueness of the measure, which Mr. Leung is keeping sufficiently nebulous as to discuss neither the law itself, saying only that the government was drafting the legal framework, or its date of enactment, which he said would be ‘when necessary.’

In fact one major driving force of Hong Kong’s housing shortage is the lack of housing: 5, 000 too few homes a year for the last six years and a projected shortfall of 185, 000 homes by 2017, according to Eva Lee of investment bank UBS.  The other is the Hong Kong government’s lack of control over its own interest rates.  The Hong Kong currency is pegged to the US dollar, forcing officials to follow a monetary policy tailored to a totally different situation.  The Federal Reserve’s attempts to rekindle the US economy are seriously inappropriate to a market that’s  more in danger of overheating than going out.

If home prices continue to be the political flashpoint they are already developing into, the question is whether Hong Kongers will vent their unhappiness – supposedly on the increase on mainlanders, or whether they’ll rally behind the cry -˜the rent is too damn high!’

Hong Kong Skyline from Victoria Peak

The Hong Kong Monetary Authority, the city’s central bank, last month imposed tighter mortgage restrictions, which Hong Kong Chief Executive Donald Tsang said were to stave off a big property bubble following soaring prices this last year. He told attendees at a business lunch: “We do not want to see a huge property bubble developing in Hong Kong,” having earlier said that he wasn’t sure whether a bubble was forming or not.

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When I was a kid, if you saw “Made in Hong Kong” stamped on the underside of anything, that pretty much assured it was cheap and badly made. You certainly could not apply that to the Conduit Road 39 building in Hong Kong, where a 6,158 square foot duplex apartment has just sold for US$56.5 million. That’s a lot of square feet, but that’s also a lot of money – and the developer Henderson Land thinks it’s a record not just for the city but for anywhere in the world.

The apartment was bought by a company whose money comes from mainland China, according to the developer, but more than that they either don’t know or won’t say.

Although Hong Kong experienced its share of the market turbulence last month with the Hang Seng falling from a high of 22540 on 8th August to 19386 nine days later, it has since reached a new peak of 24089 on the last day of the month. Clearly, Hong Kong stocks are very much part of the ‘˜China story’ and the same has been the case for the territories property market up until now. The Colliers International Hong Kong Property Market Overview published in April 2007 was optimistic and cited the following big picture influences: benign effects of Chinese growth (chiefly the boost to Hong Kong as an entrepot and the numbers of mainland tourists), local stock market growth and the expectation that interest rates would come down in the US.

Hong Kong Harbour
Hong Kong Harbour [photo credits to OZinOH]
The optimism in the Spring centred around the upcoming inauguration of the Western Corridor, providing improved transport between Shenzhen and the northern New Territories, and the very impressive HK$1.8bn paid by Sun Hung Kai for the 12 Mount Kellet Road site on the Peak (which translates into accommodation costing HK$42,196 per square foot).

The fundamentals remain positive for the property investment market despite the latest turmoil in the stock market, with investors especially keen on buying office and luxury residential units, consultant Savills said.

Managing director for Savills’ (Hong Kong) Raymond Lee Wai-man estimates transactions for the investment market in the private sector may hit HK$70 billion this year, up 8.86 percent from about HK$64.3 billion last year.

Senior director for investment Peter Yuen Chi-kwong pointed to favorable factors such as yuan appreciation, the reappearance of negative interest rates, continued capital inflow from overseas funds and attractiveness of returns.

As for interest rates, he said: “We can’t see interest rates increasing.”

Savills recently conducted the sale of Crocodile House and Crocodile House 2 in Central – indirectly owned by toy magnate Francis Choi Chi-ming – which was sold to an overseas fund for HK$1.07 billion. Savills also conducted the HK$1 billion sale of The Hacienda residential estate in Repulse Bay, also indirectly held by Choi, to Cheung Kong (Holdings) (0001).

So far this year, Savills accounted for HK$4.5 billion in investment deals out of the HK$7.5 billion market total.

Deputy senior director for investment Sam Mock Wai-ho said the HK$7.5 billion figure was double the figure for the same period last year, after stripping out the effect of the HK$6.2 billion sale of a 50 percent stake in Festival Walk mall in Kowloon Tong by CITIC Pacific (0267) to its joint-venture partner, Swire Pacific.

Still, some uncertainty remains, with Yuen pointing to the volatility in the equity market and the large supply of office space in 2008 and 2009 in areas such as Quarry Bay and Kowloon Bay.

Source: The Standard