Property price surge even shocks market

PUBLISHED : Friday, 11 March, 2011, 12:00am
UPDATED : Friday, 11 March, 2011, 12:00am

While property prices moved up first and fastest in the city's traditional luxury areas on Hong Kong Island and in select parts of Kowloon, the gains were felt throughout last year.

'Over the last few months, prices have gone up very quickly,' says Edmond Lau Yiu-wa, manager of Oriental Property Agency. 'Even in 1997, it wasn't like this time.'

Lau's agency focuses on selling village houses in Tai Po and Yuen Long. Prices climbed 40 per cent last year as New Territories homes caught up with the gains first seen in the city centre. High-end homes in developments with security and shuttle buses to the MTR are particularly popular.

He cites a transaction in Hilltop Garden, where a new village house with a 1,800 sqft garden sold on February 28 for HK$11.3 million. That's up 44 per cent from the price new homes in Hilltop Garden fetched in late 2009. A mid-range village house in Tai Po now runs at about HK$8 million, at the low end of the range they commanded in 1997.

On Hong Kong Island, apartments in Taikoo Shing - often used as a benchmark for mid-range, middle-class apartments - broke through their 1997 records last September. Other estates, such as Chi Fu Fa Yuen in Pok Fu Lam, City Garden in North Point and Whampoa Garden in Hung Hom, have all seen prices hit 1997 levels.

Lau expects a much slower pace of price gains from this month, forecasting single-digit advances for the rest of the year. The government's special stamp duty is likely to have an impact, and the heady gains of last year aren't sustainable, he believes.

'If I have money, putting it in the stock market may be better than putting it in the property market,' he says. 'Maybe the stock market can grow 30 per cent to 40 per cent this coming year. But the property market can't grow more than 10 per cent.'

Still, property professionals have been predicting a slowdown for some time - and it has yet to come. Most market watchers expected a lull in activity and in price gains after the government introduced its special stamp duty. That was announced on November 19, imposing a tax of 5 per cent on properties sold within two years of purchase, 10 per cent on those sold within a year and 15 per cent on those sold within six months.

But whatever dip there was, it was short-lived. Residential property prices advanced 6 per cent for the first two months of the year, traditionally one of the slowest periods because of Lunar New Year. 'I was actually surprised by how much it has gone up,' says Nicole Wong, regional head of property research at investment brokerage CLSA Asia-Pacific Markets. She had earlier predicted a decline in prices of about 5 per cent.

John Au-yeung, a broker with Central-based brokerage Fidelity Realty, says the budget lacked any concrete measures to scale back the market.

That reinforced the perception that Chief Executive Donald Tsang Yam-kuen's administration isn't likely to take further drastic steps to address price gains. 'The government doesn't really have the heart to deal with it unless there is pressure from the central government,' Au-yeung says. 'I deeply believe the special stamp duty was introduced on behalf of the central government.'

President Hu Jintao has pledged to get mainland property prices under control before he leaves office next year. The central government has shown it is serious about curbing rampant price gains by introducing a stream of measures aimed at getting developers to increase the supply of affordable housing and at curbing demand.

Those tough measures are encouraging some buyers there to shift their attention to Hong Kong. Au-yeung has a client who is chairman of a United States-listed mainland company who has bought five Hong Kong properties over the past three months, including a HK$10 million new unit in Cheung Kong's Crown by the Sea development in Tuen Mun.

'He has said he is not going to buy any more [mainland] property - he can't let them because of poor quality, poor maintenance and poor tenants,' Au-yeung says. 'In Hong Kong, interest rates are so low, the rental you get is more than enough to cover the monthly instalment, and the tenants are better. So they are very happy to buy property in Hong Kong.'

The special stamp duty has, however, succeeded in driving short-term speculators out of the market. They had accounted for about 20 per cent of transactions in Hong Kong. 'People still want to invest, but the special stamp duty has made the residential market non-investable for flippers,' Wong says.

Investors must now have at least a two-year horizon for their properties, brokers say, and will need to rent out apartments to cover holding costs. So the stamp duty is likely to push more housing stock on to the rental market.

'We think this year, rents will go up more than prices because of the potential risk of interest rates going up and the very real risk of government tightening,' Wong says.

The new rental stock resulted in a 2 per cent dip in rents in December, but they have more than made that up by advancing 9 per cent in the first two months of this year. Anyone renegotiating a lease signed two years ago is probably in for a nasty shock - rents have risen 36 per cent over that period.

'Those people are really struggling and having to move,' says Anne-Marie Sage, head of residential leasing and relocation services at Jones Lang LaSalle. 'The rental market is very busy - there's a lot of expansion in the financial sector, with new people coming in.'

Serviced apartments are even tighter, with operators registering occupancy rates of 90 per cent or higher - essentially full. Given the lack of places at international schools, relocating families are finding it hard to get settled, she says.

Luxury rents rose 20 per cent last year, and Jones Lang LaSalle predicts another increase of 15 per cent this year. 'I would imagine in the second half of this year we might see a bit of a slowdown,' Sage says. 'There comes a point where people say 'enough!' in terms of rent.'