Turnaround triggers return of boom times It was not an unfamiliar tale two years ago to hear of executives being estranged from their families as the latter sought refuge from a fatal respiratory disease that floored Hong Kong. In the past few months, forced separation is an occurrence that has again slipped on to the radar. Only this time, it is for very different reasons: overcrowded playgrounds. Jeslyn Koh, a consultant at recruiter Bennett Associates, is no stranger to the conundrum. 'I was talking to a [chief financial officer] last week ... he told me he couldn't move his family over from Singapore to Hong Kong because there are just no vacancies for his children in an international school.' As global businesses set up shop or bolster their offices to take advantage of a weak US dollar, capital markets boom and accelerating mainland growth, a wave of hiring and expansion is triggering supply constraints and a bout of mini-inflation in certain corners. Expatriates may be coming back to Hong Kong with gusto, but they are beginning to feel the squeeze in the form of limited school places, rising rents and steeper price tags attached to the perks they previously may have taken for granted. A general upswing in international inflows seen last year - both new businesses opening offices and existing companies augmenting their staff levels - appears to have surged in the first quarter, if anecdotal evidence is to be believed. Headhunters such as Dan Chavasse, for example, expected the usual round of job-hopping and hiring to subside after the traditional busy period of Lunar New Year. 'It hasn't, by a big margin,' he says. 'Whereas you could struggle and get by without replacing people [in the past] ... now you can't. It's been awesome to see the market turn in this way, very quickly. In true Hong Kong fashion, we have gone from doom and gloom to exuberance.' Mr Chavasse, the managing director of Michael Page International (Greater China), notes volumes of hires rising across the board, although banking, financial services, wealth management and supply-chain professions are particularly hot. 'Lawyers are back in demand ... anyone who understands the derivatives business is in demand.' Ms Koh is also seeing a large number of small to medium-sized firms making a move out here. 'They are in manufacturing, electronic manufacturing services, chip manufacturing. I do personally see an increase in the number of firms coming in on the semiconductor side.' She cites the opening up of the Pearl River Delta and Yangtze River areas in particular, with companies lacking a China presence opting to set up in Hong Kong to avoid the mainland's cumbersome laws and procedure. In turn, InvestHK associate director-general Simon Galpin is noting a sharp rise in mainland firms coming to Hong Kong. These firms account for about 20 per cent of the agency's portfolio. 'It's still a rapid growth,' he stresses, in part triggered by the large number of mainland companies listing on Hong Kong's exchange. Generally, the first few months of this year have panned out to be InvestHK's busiest yet. 'We tend to talk to companies at an early stage. In 2004 we started to see companies ... becoming more and more receptive.' However, in terms of the incoming manpower, there are few figures available to quantify the extent of this trend. Immigration records showing the number of foreign residents in Hong Kong for example, are available only up to the end of last year. While the Philippines and Indonesia top the list of nationalities, the figures for last year show little sign of a gradual slowdown in foreign residents abating. Expatriates from the United States for example dropped from 35,500 in 1998 to 29,900 last year. Yet statistics showing the number of employment and investment visas (excluding domestic helpers) granted last year and in the first quarter of this year have risen substantially. In 2003, the figure stood at 15,774, increasing to 19,155 last year and 4,840 between January and March this year. The Brunswick Hong Kong Purchasing Managers' Index shows that staffing levels during this month rose at their fastest pace in 13 months, with survey data suggesting firms are scrambling to cope with a sharp growth in new business. Almost 12 per cent of panellists recorded increased employment during the month. Frontline service professionals who deal with newcomers to the city on a daily basis are not short of work. 'We're housing guys flat out,' says Piers Brunner, the managing director of Colliers International. 'People are phoning us, saying they've got 10 families coming in ... it's all sorts, chemical manufacturing companies, banking is quite hot, nearly every service sector is bringing in people.' Landlords are sitting pretty: with limited supply at the high end of the market in particular, the rising ranks of incomers is pushing rents up. According to Victor Tin, an assistant general manager of Sino Land, interest from executives at the $80,000 per month rental range is very strong. Likewise those with a budget of $20,000 to $50,000 a month are in ample supply. 'From the end of last year, companies tended to move people instead of waiting. For example, I have seen people being transferred to Singapore and China four or five years ago, and they're now being transferred back to Hong Kong.' By his estimate, since December last year, rents have been boosted by about 15 per cent in the luxury end of the market. Companies renewing tenancies on behalf of employees are also facing the fiscal reality of an improving market - according to Mr Tin, rent increases of about 30 per cent are common. The peak time for agents has yet to come - the summer months are usually the busiest as newcomers seek to get their children settled in before the new school year starts in September. Families arriving late in the summer may be in for a shock: places are extremely limited at many international schools, with some closing their doors to applications. The English Schools Foundation (ESF) stresses that it has a 'finite' system. 'Clearly, we are finding it more difficult to find places for people, but our priority is to manage demand,' acting assistant chief executive Chris Forse says. ESF schools are nearly at full capacity for years 1 to 8, although there are places in more senior years. One school, King George V, is not even accepting any applications for the forthcoming term. There are about 2,000 children on the ESF's primary school waiting lists. 'I have to say, for 2006 a reasonable estimate is that the situation will become more intense,' Mr Forse notes. At Hong Kong International School (HKIS), all places for grades 4 to 8 have been filled, meaning children aged nine to 13 are likely to be turned away should they apply now. In its kindergarten, there are already 72 children on the waiting list for September. For pre-kindergarten, the figure is 60. HKIS spokesman James Manning explains: 'Many decide to apply in the hope of getting in later on in the year. 'Others have indicated to us that they will postpone or even cancel their plans to move to Hong Kong,' in particular those with US schooling backgrounds. On a more recreational note, an influx of high wage-earners is inflating another set of prices: club debentures. According to Doris Chan, a manager at the Hong Kong Debenture Exchange, the going rate for a secondary-market membership to the Aberdeen Marina Club has gone up 30 per cent in the past few months to about $1 million. 'The Hong Kong Golf Club has risen a lot as well,' she says, citing the current rate for a corporate debenture at $7.2 million. A few years ago, it was $4.5 million. Also in limited supply are debentures for the Ladies Recreation Club, the Hong Kong Country Club and the Jockey Club. As expatriates ponder the prices, economists such as Stephen Cheung Yau-leung, a professor of finance at City University, see this burst of activity as a testimony to Hong Kong's 'own distinct advantage', much to the abhorrence of doomsayers who prophesied the city's demise as economic growth surged in China. Having talked to some of the companies moving out here, he has concluded they are not the Fortune 500 which could simply set up a base in Hong Kong's supposed arch-rival, Shanghai, but the smaller or medium players. Hong Kong's newcomers are leveraging on the city's evolving middleman role, its lack of capital controls and strong rule of law, he stresses. 'We also have a critical mass of financial people and entrepreneurs. 'Shanghai still has a lot of hurdles ... it's catching up, but Hong Kong still has its own distinct advantage. 'It's good to have people coming back ... they like the way of life here.'