Weekend Property

Most wanted: prices of homes in the luxury sector remain resilient as supply is scarce and demand high

A slimmer selection of pickings means that many tycoons are still willing to pay top dollar for a high-end home

PUBLISHED : Friday, 22 July, 2016, 12:56pm
UPDATED : Friday, 22 July, 2016, 12:56pm

Hong Kong’s luxury market remains resilient even as prices for mass-market properties continue to slide.

A recent report by international property consultants JLL shows that while the capital values of mass residential have dropped 6.4 per cent in the first half of this year – under pressure from the Hong Kong Monetary Authority’s tightening of loan-to-value (LTV) ratio on mortgages – capital values of luxury residential dipped only slightly, by 1.9 per cent.

“On the top luxury side, buyers have higher affordability and are not affected by the mortgage issue,” says Henry Mok, regional director of capital markets at JLL. “Also, supply of superluxury [property] is at a very low level.”

The slimmer pickings have helped maintain the price levels of luxury properties, Mok says.

Reporting data from its latest research, Knight Frank confirms a polarised market which “continued to be led by the primary and superluxury segments”. Luxury prices did edge back, but still outperformed the mass market over the period. The superluxury sector “remained strong”, although being in a league of its own, trends are harder to quantify.

There are fewer pricey properties to begin with, explains David Ji, Knight Frank’s director and head of research and consultancy for Greater China. At the uppermost, superluxury segment, such as a house on The Peak, only a few transactions occur annually.

“And the prices [in the luxury sector] do not always follow the general trend of the market – rather like a Picasso painting,” Ji says. Prices for superluxury property fluctuate from deal to deal and depend on the location and nature of the houses, he adds.

Historically, Hong Kong’s luxury properties are relatively more stable than the mass market even during a downturn, when the overall market is hit with external shocks (such as the global financial crisis in 2008), Ji says. He puts this down to strong interest from buyers looking to secure what is widely regarded as a prime asset – especially those from mainland China – as well as a general lack of new supply in the sector.

Before the 15 per cent additional stamp duty was applied to non-permanent-resident property purchases in October 2012, mainland Chinese buyers accounted for roughly 40 to 45 per cent of the high-end market, Ji says. Despite this tax, Ji is among those who believe that mainland buyers will return, and that the luxury sector, as a whole, will continue to outperform. “This is [due to] a supply issue,” he says. “The large supply coming on board in the next few years is mostly mass-market houses in the New Territories. Supply [of luxury homes] remains [limited] and this situation will persist for the rest of the year, well into 2017.”

The superluxury residential assets market is still supported by demand from mainland tycoons, who are willing to pay larger lump sums for buying those properties
Henry Mok, regional director of capital markets at JLL

JLL’s report agrees that investor interest in the ultraluxury segment sees no signs of abating. It cited a unit at Severn Villa on The Peak, reportedly sold for HK$232 million or HK$170,463 per square foot, which was a record high in terms of unit price for apartments in the city, and returned for the vendor 18 times the original purchase price in 2003.

Mok stresses the pull of the scarcity factor. “‘Best performing’ [in terms of the luxury and superluxury sector] only refers to the price and not transaction volume, as the transaction level is still very limited,” Mok says, noting that just 55 homes over HK$100 million sold in the first half – 15 per cent fewer than a year ago. “The superluxury residential assets market is still supported by demand from mainland tycoons, who are willing to pay larger lump sums for buying those properties,” Mok says. “In the first half, the ultraluxury market has outperformed all other residential sectors.”

While there is no clear definition, ultraluxury is generally considered as properties priced at HK$100 million and above, in traditional prime locations such as The Peak, south side and Mid-Levels. Around HK$50,000 per square foot is the “top luxury” benchmark, Mok says.

Centaline Property Agency’s senior regional associate director Eric C. H. Lee believes the present economic climate are adding a new factor to the inherent demand.

“Luxury residential property in Hong Kong continues to outperform the mass market because of the instability of the stock market and depreciation of RMB [renminbi],” Lee says. “As investors try to secure an asset in a prime location, luxury residential property – in low supply anyway – has the greater potential for capital gain.”

Lee adds that the June sale of 15 Gough Hill Road, reportedly for HK$2.1 billon, should stimulate other transactions of top-tier properties, demonstrating home buyer and investor confidence in the luxury residential market of Hong Kong.

A Shenzhen-based property investor bought the house, raising concerns of an overheated luxury property market.

And despite Hong Kong’s overall property sales reportedly falling by nearly 40 per cent in the first half, compared to the same period last year, Cello Chan, assistant general manager, project marketing at Wheelock Properties, points out that sales of superhigh-end properties have not slowed down.

Wheelock is responsible for the project management, sales and marketing of Mount Nicholson, an exclusive gated community of 19 detached houses and 48 apartments located on Mount Nicholson Road at the Peak.

As the only development in this prestigious locale, Chan expects strong demand for the upcoming launch of 24 apartments, ranging from around 4,200 to 4,600 sq ft in saleable area, including a “great chamber” master en suite with huge walk-in closet of around 1,000 sq ft. While few comparable new developments exist, Chan says that considering the Opus is sold out, “we can see strong demand for super-high-end properties”.