Prices of car parking spaces likely to be more resilient in market downturn than residential property
The number of private cars per 1,000 population increased from 49.5 in 2003 to 71.2 in 2015
The prices of residential car parking spaces move in tandem with changing residential flat prices, but a shortage of car parking spaces provides a safety net against a price slump in the near future.
The average price of a car parking space rose 204 per cent from 2005 to 2015, while the overall residential price, according to the index produced by the Rating and Valuation Department, rose 223 per cent in the same period. The average price of a car parking space rose from about HK$397,000 in 2005 to HK$1,207,000 last year.
Residential prices are now in a declining trend, with the Centa-City Leading Index at an 18-month low, down 13 per cent from its peak in September. Following the historical trend, it seems logical to expect prices of car parking space prices will also decline. However, they are likely to fall more slowly than residential properties.
The upsurge in residential prices in recent years was fuelled by a shortage of housing supply and strong demand from buyers from Hong Kong, mainland China and overseas.
Similarly, the price of car parking spaces has also been supported by strong demand from investors – in particular those shifting from domestic properties to non-domestic properties after the introduction of special stamp duty and buyer stamp duty in 2011, as well as from end users.
There were more than 20 wholesale transactions of car parks in residential developments in 2014 and 2015, and some of them were later sold on as individual car parking spaces. Many such sub-sales of car parking spaces were grounded on speculative demand.
The number of registered private cars rose continually from 2003 to 2015, when it hit more than 567,000, with the number of private cars per 1,000 population increasing from 49.5 in 2003 to 71.2 in 2015.
The number of private cars is closely tied to the wealth effect and car ownership has also grown as more people, especially from the younger generations, choose to own affordable valuables rather than following their parents who saved money to buy real estate.
On the other hand, an evident shortage of car parking spaces has been deteriorating. According to the Transport Department, there are about 683,000 parking spaces in Hong Kong, of which 198,000 are for public use and 485,000 are designated for private use in commercial, residential and industrial premises. The total number is far lower than the 779,329 registered vehicles – excluding franchised buses, public light buses, special purpose vehicles and government vehicles – last year. There have been news reports of drivers needing to queue overnight to rent a space in a public car park in Tsuen Wan. Illegal parking has worsened, with reports that the number of prosecutions for illegal parking reached 1 million in the first nine months of 2015.
The shortage of car parking space supply is attributable to a combination of factors.
In 2013 and 2014, two government public car parks, the Tsuen Wan Transport Complex Car Park and the Middle Road Multi-storey Car Park, were closed, with the loss of more than 1,500 car parking spaces. The two car parks are being turned into new commercial and residential developments.
In the past few years, the government has squeezed every available government brownfield site into the land sale programme. A lot of these sites were previously leased for public car park use under short-term tenancies, with many accommodating commercial and goods vehicles besides private cars. As a result, commercial cars have also been in competition with private cars for parking spaces.
Moreover, the government has reduced private car parking space provisions in building redevelopment.
The floor area exemption policy in relation to car parks was changed in April 2011. Following the change, car parking spaces need to be placed below ground level in order to get full exemption from gross floor area calculation. But construction of basements would prolong the development period and increase the development costs. In redevelopment cases where there is no requirement in the land lease to build car parking spaces, developers may opt not to provide them.
The Planning Department has also tightened the parking provisions for private housing in the Hong Kong Planning Standards and Guidelines since February 2014. As a result, the shortage has become even worse in urban areas where old buildings have been torn down and rebuilt.
Given the tight land resources and that priority is often given to residential developments nowadays, an increase in car park provisions in the near future is improbable. In the absence of any strong force causing a significant reduction in the number of vehicles in Hong Kong, car park rents will be sustained. And that means the decline in private car parking space prices, if any, is expected to be milder than that for general residential properties in the near future.
Dorothy Chow is a regional director of valuation advisory services at JLL