In Hong Kong, It All Comes Back to Property

Hong Kong is a nation obsessed with real estate. At parties people talk of who sold well and how much they made. When new residential buildings are released for sale people queue up to get a chance to buy in. Some developments hold lucky draws. Potential buyers get a number and flats are sold in order of your number. If your number is low on the list, you can sell it. Not the flat – just the low number. Then another buyer can get in and secure an apartment.

All this is fueled by rising property prices. Hong Kong has historic low interest rates. The Hong Kong dollar is pegged to the US dollar (US$1 = HK$7.78). This means whatever interest rates are on offer in the USA are on offer here – even though our economy is performing better.

At the same time there is limited supply in contrast with demand. Hong Kong continues to grow with more migrants. Many come from across the border flush with cash and want real estate investments. Pressure from Mainland Chinese buyers is one factor in price rises.

Michael Wolf photographs small Hong Kong apartments

For newcomers the cost of accommodation is always a shock. Many locals live in small flats an MTR ride away from Central, the main business district. These 600 square foot flats can house three or four generations – newborn grandchildren being raised by parents, grandparents and great grandparents. The close living quarters are another reason shops stay open late and restaurants do so well. Most go home only to sleep.

Hong Kong has the largest concentration of public housing of any country in the world. The Hong Kong Housing Authority provides homes to 2 million people, or about 30% of the entire population.

For Westerners relocating to Hong Kong the sticker shock of apartment rentals is overwhelming. A three bedroom apartment in South Bay is listed at HK$150,000 per month (US$19,340) and a small on bedroom in Soho is HK$35,000 (US$4,513). Search yourself at Squarefoot.com.hk – it’s a feature of life here. Landlords increase rents at the end of a two year lease and force people to relocate bi-annually. Our current home had been vacant one year as the landlord tried to find suitable tenants.

At the other extreme, Hong Kong offers high-end luxury apartments

Purchase prices are even higher. A three bedroom apartment in Jardine’s Lookout lists between HK$35 million (US$4.5 million) and HK$65 million (US$8.38 million).

Property in Hong Kong has suffered two major crashes – the first in 1997 and the second during SARS. Friends bought their place during SARS for HK$5 million (US$645,000) and this week received an offer for HK$20 million (US$2.6 million). They hadn’t renovated. Nor do they plan to sell. Where could they afford to move?

Given the high demand and the gyrations on the global markets, analysts forecast Hong Kong prices may drop between 5% to 13% in the next 12 months. Yet no one can accurately predict Hong Kong’s market. There are too many factors to consider.

Property will remain a national obsession for generations to come. Like Manhattan, Hong Kong is ringed by water and supply is limited. But unlike Manhattan we can’t spill over into Brooklyn, Queens or New Jersey. Our next door neighbour is Shenzhen in Mainland China. That is one of the few places that makes New Jersey look good!

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