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New money pours in

Kenneth Ko

New money is doing the talking in the luxury residential market these days. Who said marbled lobbies with chandeliers and classical European pillars have had their day? Not on Kowloon side. This is where newly enriched mainlanders are putting their cash while old-money habitats such as The Peak and Island South look across forlornly - at least for the time being.

Recent reports of record or sky-high prices have seen the luxury market red-hot with activity, driven by a combination of the mainland's nouveaux riche, low-level interest rates and scarcity in the supply of top-end flats.

A new breed of 'specuvestors' has also poured over the border leaving some agents wondering whether their cash has really come from stock-market winnings, or the fruits of mainland banking rules being flouted and loans being used to buy Hong Kong flats. Tales abound of 'hot money' fund transfers and even one mainlander entering an agent's office with a case full of cash asking to buy a flat. Once the agent got over the shock, he duly gave the man a lesson in how large cash transfers were done under Hong Kong property laws.

Developers have been taking advantage of the improved buying sentiment since early this year to release new luxury projects at higher prices in the primary market. Many high-profile transactions were recorded in Kowloon, where most of the new luxury supply, such as The Harbourside, The Cullinan, The Arch and The Masterpiece, are concentrated.

Recent selling prices of selected flats at The Harbourside exceeded HK$20,000 per sq ft, while the most expensive units in The Masterpiece were sold at more than HK$30,000 per sq ft. New luxury projects in Kowloon grabbed most of the market attention this year and outshone the secondary sale of deluxe homes in traditional luxury residential locations such as Island South and Mid-Levels.

Strong buying interest in new luxury properties has been attributed to excessive liquidity and the continued inflow of overseas capital, particularly money from mainland buyers.

Simon Lo Wing-fai, director of research and advisory at Colliers International, said luxury home prices had surged by about 34 per cent from the trough in February to August. Mid-tier luxury units, worth between HK$20 million and HK$50 million, and top-end units of above HK$50 million saw the most interest.

'Mid-tier units have been the most popular, but there are signs of growing demand for top-tier units in the past six months,' says Lo, adding that the buyers were more like specuvestors.

'They are not short-term traders, but they have strong financial backing to hold their properties for a long period. They are not buying for yields, but for capital appreciation over the long term. A significant number are mainland buyers who are looking for quality products in prime locations and are generally buying with cash. There is very little similar stock in the market. Buyers are mainly seeking projects constructed by well-known developers.'

When a mainland buyer splashed out HK$439 million, or HK$71,280 per square foot, for a 6,158 sq ft unit at Henderson Land's newly built 39 Conduit Road in Mid-Levels earlier this month, it not only became Hong Kong's most expensive flat, but the world's. At The Masterpiece in Tsim Sha Tsui, an apartment recently went for HK$24.5 million, or HK$30,025 per sq ft, making it the most expensive one-bedroom flat in the city.

Yu Kam-hung, senior managing director at CB Richard Ellis, says Kowloon has suddenly found itself home to some of the world's most expensive apartments, partly thanks to cash-rich mainlanders. 'Prices in the city's luxury market have been largely driven up by super-rich mainlanders who tend to target new top-end properties. Buyers from the mainland buy in Hong Kong as an investment as well as a means to obtain residency in the city,' Yu says.

'Kowloon feels far from the cloistered mansions of The Peak and Deep Water Bay on Hong Kong Island, where the city's old money holds sway. But it is a different clientele and the mainland buyers look at things differently. They are more impressed by the liberal use of marble floors and the proximity to Kowloon's vibrant shopping districts.'

Yu points to how the territory's immigration policy has allowed Chinese nationals with residency outside the mainland to win Hong Kong residency by investing HK$6.5 million in the city's property or financial markets. Abundant liquidity across the border, the weakening of the Hong Kong dollar against the renminbi and the buoyant mainland economy were other factors driving the luxury property market.

Joseph Tsang Hon-ping, international director and head of residential property at Jones Lang LaSalle, has also seen luxury buyers' interest switch from one side of the harbour to the other.

'This new-tier luxury segment, such as those projects above Kowloon Station and in West Kowloon and Tsim Sha Tsui, are popular with mainland buyers who prefer properties with easy access to MTR connections and large shopping malls,' Tsang says.

'These luxury homes are selling at sky-high prices while their rental yield has dipped into a new low of less than 2 per cent. With such an unattractive yield, their upside potential is likely to be limited.'

While luxury abodes in such old-money domains as Island South and Happy Valley lag price growth compared with resurgent Kowloon, Tsang says 'existing luxury homes in traditional districts enjoy better rental returns, have more potential in growth and offer good investment opportunities'.

Secondary luxury prices at Hong Kong Parkview in Tai Tam are about HK$13,000 per sq ft and those at Beverly Hill in Happy Valley are about HK$12,000 per sq ft.

'For most mainland buyers, a physical property asset in Hong Kong is one of the best vehicles for them to park their ample amount of cash,' says Lo of Colliers International.

As with any surge in buying, there is the risk of a bubble forming and analysts caution that the mood might change but not in the immediate term. 'The key factors turning the tide will be the change in [central] government policy and the direction of funds flow. Luxury prices are likely to rise by another 5 per cent to 10 per cent in the next 12 months,' says Lo.

Weaker fundamentals lay behind the new-money phenomenon, spurred largely by mainland investors and speculative buying, warns Tsang of Jones Lang LaSalle, who sees life in the old-money neighbourhoods yet.

'Those new-tier property investors could get their fingers burned by any sudden market change,' he says. 'Any interest rate increase would be a blow to confidence and buying interest, though there is no sign of any immediate upturn in rate movements.'

Additional reporting by Martin Donovan

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