Magnet for investors

Despite the government's all-out effort to bring down prices in an overheated property market, experts foresee prices on Hong Kong Island to remain strong.

With its proximity to the central business district, Hong Kong Island has always been the favourite location to call home for the middle class, even in the face of policy uncertainties.

"The government's cooling measures mean residential price movements will be uncertain for a while," says Thomas Lam Ho-man, director and head of research for Greater China with Knight Frank. "This will be particularly apparent in new developments and prime projects where a significant number of buyers are usually companies or mainland-based investors."

Nevertheless, "due to its relatively prime location, Hong Kong Island is expected to remain more resilient compared with the rest of Hong Kong", he adds.

In traditionally coveted districts, such as Mid-Levels and The Peak, prices may plateau for a while, but look unlikely to slide. Elsewhere, regeneration projects in areas, such as Wan Chai, North Point and Kennedy Town, will see a limited number of upscale properties coming on the market.

The continuing extension of the MTR, with stops on a new West Island Line and Aberdeen, will inevitably spur interest in areas seen as becoming more accessible and better served.

Judging by strong prices at The Belcher's - in western Mid-Levels, close to the University of Hong Kong - the so-called MTR effect is already having an impact. The West Island Line, stretching to Kennedy Town, may only start operating in late 2014, but property prices close to its three planned stations have been climbing rapidly since 2009.

A 1,425 sq ft apartment at The Belcher's sold for HK$21.8 million, or HK$15,298 per square foot. An 887 sq ft apartment at The Merton in Kennedy Town sold for HK$10.86 million, or HK$12,238 per square foot.

"We believe that the MTR effect is not yet totally priced in," Lam says. "Properties in Western district still have considerable potential in the coming two to three years."

Knight Frank expects a long-term positive impact on sale prices and rental yields in Island South. In the medium term, it notes, this should benefit end-users with genuine housing needs, not just speculators in search of a safe haven or one more asset for an investment portfolio.

Homes in this area have commanded fairly high prices, such as a 1,483 sq ft apartment at Residence Bel-Air sold for HK$19.8 million, or HK$13,351 per square foot. At the nearby Baguio Villa, a 1,520 sq ft apartment sold for HK$17.8 million.

Another district to watch out for is Wan Chai, where residents belong to one of the highest-earning income groups in Hong Kong.

"During 2013, the majority of new supply will be in Kowloon and the New Territories," Lam says. "However, the Lee Tung Street development in the heart of Wan Chai is one to look out for. It is being overseen by Sino Land, Hopewell and the URA [Urban Renewal Authority] and, with about 1,300 units, is a rare example of a large-scale project on Hong Kong Island."

Existing properties nearby include York Place, where a 981 sq ft unit recently sold for HK$17.6 million, or HK$17,941 per square foot, while a 1,131 sq ft apartment at Star Crest was sold for HK$20.78 million, or 18,373 per square foot.

"Wan Chai is changing fast," says Richard Lee Chi-shing, chief executive of Hong Kong Property (Agency). "Along with existing developments, such as Pacific Place and the Hopewell Centre, this will create a synergistic effect and bring new vitality to the district."

Besides apartments, the master plan includes close to 9,000 square metres of new commercial space and easy transport connections.

"Looking ahead, we also expect this supply of luxury apartments to speed up secondary market transactions and, in due course, cause those prices to rise," Lee says.

Lee downplays the likelihood of this leading to explosive price growth, such as predicted for Kowloon East, as new properties in Kwun Tong and Kowloon Bay become available. Instead, he emphasises the viability of the basic blueprint for urban redevelopment and the need to push forward with such schemes as one obvious way to accelerate supply in various price brackets.

Regarding other trends for next year, Lee believes that new properties, such as The Zenith in Wan Chai, are likely to outperform the market. This assessment is based primarily on projected rental yields of 3.5 per cent or above and the general ease of letting. With facilities that include a residents' clubhouse, plus different apartment sizes and layouts, demand is constant and there is also a positive knock-on effect for neighbouring buildings.

"New flats usually stimulate the prices of secondhand properties nearby," Lee says. "Purchasing before the new flats are up for sale may be a good investment."

Overall, Lee foresees no lessening in demand and assumes the relative shortage of new Hong Kong Island residential properties will at least sustain average prices close to present levels. "Demand from both local and foreign investors has increased substantially in the past few years," he says. "Island properties are seen to provide an extra store of value compared with other parts of Hong Kong. Since we expect the overall supply shortage to continue in the coming years, buying here will still be an attractive investment."

Projects classified as redevelopments, rather than brand-new sites, will be the focus of attention in the next 12 months. On completion, these will reshape the profile of certain older neighbourhoods, creating different dynamics, upgraded amenities and a range of commercial opportunities.

WoHo on the rise

The acronym WoHo - standing for "west of Hollywood Road" - is a new favourite with developers and real estate agents on the island. It refers to the Sai Ying Pun to Kennedy Town residential district but, more allusively, to the impact future MTR stations are already having on prices. "For the last two years, people have been buying here as an alternative to Mid-Levels," says Keith Chang, senior director of residential for Savills. He says the new South Island Line is having a similar effect. "With more convenient transport, there is definite potential for prices to go up before and after the line is operating. Residential properties in Ap Lei Chau will benefit the most," he says.