Speculation, not location, is the new watchword

A property's location used to be key to its value, but now speculators are guided by other factors

PUBLISHED : Tuesday, 27 November, 2012, 12:00am
UPDATED : Tuesday, 27 November, 2012, 4:19am

Location! Location! Location!" You may have heard this age-old real-estate wisdom when searching for a property. But is it the number one consideration?

A friend of mine has invested in residential properties for the past two decades but recently shifted to the commercial property market.

He was a believer in the conventional wisdom and took it as the primary rule to follow it when he made his first purchase of an office property six months ago.

At the time, he recalled, he received three offers from property agents.

One was an office unit at the Chevalier Commercial Centre in Kowloon Bay, which is 10 minutes away from the Kowloon Bay MTR station and was priced at HK$5,700 per square foot. The other units were a bit further from the MTR station. One was a unit at Enterprise Square Phase One and another one was at the Nan Fung Commercial Centre. They are about 20 minutes walk from the MTR station. The selling prices of these two properties at the time were below HK$5,000, reflecting their less favourable locations.

As a believer of this conventional "location, location, location" wisdom, the friend chose the unit at the Chevalier Commercial Centre.

Six months on, my friend recently called his agent to see how the value of the property was doing.

He was told that the value of the office floor at Chevalier Commercial Centre had appreciated by about 30 per cent, in just six months. Not bad!

But the latest transactions at Enterprise Square Phase One and Nan Fung Commercial Centre rose more than 40 per cent. The asking price of Nan Fung Commercial Centre is now as high as HK$9,200 per square foot - almost double the transacted price six months ago.

The wisdom he had once believed in was now being questioned.

Then he was reminded by an agent that the government planned to construct a 9-kilometre, 12-station monorail system linking the Kai Tak development area, Kowloon Bay and Kwun Tong. It is a part of the revitalisation programme by the government, announced in October last year, that aims to transform it into Hong Kong's second central business district, including the city's largest cruise ship terminal.

The proposed monorail would link the MTR Kowloon Bay Station, through Wang Kwong Road, where it will be close to Enterprise Square and Nan Fung Commercial Centre. Although the rail system will only start services in 2023 - 10 years from now - investors have been speculating that values will increase.

"Speculation. Not location!" my friend exclaimed.

Agents said the prices of a single-block property such as Chevalier Commercial Centre usually grew at a slower pace because of limited transactions for reference. But Enterprise Square and nearby Nan Fung Commercial Centre created a cluster effect.

Sales and prices of commercial property have surged in the past three months, especially in Kowloon East as investors speculated about the future development of the area.

Many investors who used to buy residential units recently shifted to commercial properties, after the government announced new stamp duties for non-permanent residents and buyers who purchase by using company names.

Last Friday, tenders for the Kowloon Bay commercial site drew an overwhelming bidding response, with 20 developers submitting their bids. It is believed to be a new indicator of the market and it is likely to attract more speculation in the area in the near future.

"Can you drop the word 'speculation' when you write the article?" requested an agent. "If you keep writing about speculation in the office market, the government will eventually intervene. There will be no more transactions for us, and no more news stories for you."

So what is my friend's new move? The former residential property investor has attracted a number of partners to buy an office unit in Tsuen Wan, which he sees as a laggard area as office prices are trading at an average price of below HK$4,000 per square foot.