Property Woes
Hong Kong’s property market is going through one of its periodic shakeouts. Just about every sector is suffering at the moment.
Two new prominent commercial grade A office buildings in Central are reported to be struggling to attract tenants. A four-star hotel up for sale has just had its asking price slashed by 40 per cent – from $1 billion to $600 million. Empty shops can be seen everywhere. The most prominent case might be the luxury mall at the 1881 Heritage site in the prime shopping district of Tsim Sha Tsui, reported by the Straits Times to have only three paying tenants out of its more than 30 units. In nearby Canton Road a shop previously occupied by a famous watch brand now has a bank as its tenant after the rent was dropped by 80 per cent. There are similar stories from Causeway Bay.
Near where I live is a stretch of four street level shop units that might serve as a microcosm of the current market situation: one is an empty retail store; it is surrounded by three premises occupied by property agents.
Despite the clear writing on the wall, some landlords still can’t get the message. We all read recently about the famous Kwun Tong tea house forced to close down because of a proposed major rent increase. The space was subsequently let to a different tenant at a reduced rent the tea house had been prepared to pay. I am aware of an office space in Admiralty which was left vacant for a year when the existing tenant and landlord were unable to agree, but later let to a new tenant at a price the outgoing one had offered to pay.
These indicators are important because they confirm our economy is recovering only slowly from the Covid years, and tepid growth affects the whole community. But my major concern is with developments in the residential housing market.
Here the range of living conditions and financial circumstances is so wide as to threaten social stability. At one end of the spectrum we have luxury mansions on the Peak being sold at a “discount” price of several hundred million dollars. At the other we have over 200,000 persons living in tiny subdivided units.
Somewhere in the middle are the private sector-built apartments for sale or rent. Here the wind sems to be blowing in several different directions at once.
Most eye-catching are the discounts of up to 38.5 per cent being offered by the developer of a major project at Kaitak. Previous discounts were at 22 per cent. The argument for such deep price cuts is that several more major developments are about to come on the market, some also in Kaitak but others in areas such as Yuen Long, North Point, Wong Chuk Hang and Tai Po. With such a large market overhang, developers risk being left with a substantial unsold inventory. With mortgage rate cuts about to kick in once the Federal Reserve Board starts its downward adjustment later this month, sales agents are claiming this is a good time to buy. On the other hand from the point of view of potential buyers, if this is the start of a price war, why not wait a bit longer to see who will cut next and by how much. And how do the buyers of units sold with the smaller discounts applicable earlier feel?
Meanwhile the rental market is reported as being very strong, partly because of the influx of tertiary students from outside the SAR, and partly from the arrival of new immigrant professionals looking for short term lets before committing to purchase. So rents in the private sector are rising.
Given the fluid situation, the banking sector has become relatively conservative in granting mortgage loans. A friend told me recently of her daughter’s case where she and her partner were being told to put down a deposit of 40 percent of the list price of a new apartment before the bank would lend the 60 per cent balance.
Now I don’t purport to be an expert on the local property market so I am not going to offer any advice to potential buyers. But I can report on my personal experience over the last 38 years. I first stepped onto the property rollercoaster here in 1986. By 1997 following some changes in personal circumstances I ended up with my current apartment for which I had paid about $8 million. Within three years, thanks to the East Asia economic crisis, the value had dropped to a little over $5 million. The economy then boomed and so did property prices, at the top of the market I received an indicative price offer of over $50 million from a developer who wanted to buy up the whole block for redevelopment. Given the recent downturn, the current price is probably more like $20 million.
I didn’t panic at $5 million, I didn’t celebrate at $50, and I don’t begrudge the “lost profit” in the fall to $20. This concrete box has become my home. This is where we raised our children, this has been my life.
So my suggestion to families considering property purchase now is simple. Decide what it is you want out of life. If you can find a nice property where you feel comfortable, which could be your home, at a price you can afford, then why not forget about future price fluctuations. You have already won the lottery of life. Enjoy.