In Hong Kong’s twisted property market, location is no longer king
Albert Cheng says property developers eyeing cash-rich mainland investors have learned to pile on the luxury in new developments outside posh areas. And their clever marketing is paying off
The golden rule in any property investor’s playbook is “location, location, location”. In a bull market, the price of real estate in the top locations takes the lead and rises; in a bear market, the price does not drop drastically. For this reason, putting money in a well-situated property is one of the safest havens for investors.
History speaks for itself. In the post-war years, much of Hong Kong people’s wealth was accumulated through property investment. And buying the cheapest property in a prime location was always better than buying the most expensive property in an inferior area.
But times are changing. With the rise of China and the subsequent inflow of mainland capital, ostentatious investors from across the border now dominate the Hong Kong market. And their style of investment has turned the golden rule upside down.
As we all know, property prices have been rising more or less continuously since the 1980s, and, most of the time, the market has been steered by luxury property. Properties in the top districts, such as on The Peak, in Mid-Levels and the southern districts, excel in the market, and their prices reach record highs every year. These luxurious properties were the most defensive assets of Hong Kong people during the financial crisis of 1997. They have been the mainstay of the real estate market.
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After the economic downturn, in 2005, thanks to the Individual Visit Scheme that allowed individual mainland tourists to come to Hong Kong, and the Closer Economic Partnership Arrangement between Hong Kong and the mainland, the property market recovered. The prices of luxury residences in the prime districts were the first to rise. Again, the wisdom of property investment prevailed.