Luxehomes Annual

Why Southside offers buyers a sea of opportunity

  • Despite economic uncertainty, there is hope for purchasers wishing to lay their hands on trophy assets in this distinguished, bay-filled area
  • With letting markets favouring tenants, property agents expect a softening in rental rates
PUBLISHED : Friday, 23 November, 2018, 10:04am
UPDATED : Monday, 26 November, 2018, 3:19pm

Southside is one of those highly desired locations where finding new and previously owned homes for sale can be challenging. The lack of land, and a high proportion of owner-occupiers with strong holding power, are testament to the fact, and it is the reason this bit of land looking out over the South China Sea is considered a market in its own right.

While the impact of a continuing trade war between the US and China on the property market has yet to be gauged, property agents say well-heeled homebuyers are taking advantage of the gloomier economic climate by bargaining aggressively. The full-blown trade war that broke out in summer, coupled with rising interest rates, has weakened buyer sentiment: in September, only five residential properties across the district changed hands, according to Land Registry records, compared with the last peak of 18 deals, which took place in June.

“Luxury property buyers have already factored in rising interest rates. But the trade conflict — which came as a surprise to many — has led to buyers taking a wait-and-see approach and calling for more room for discounts,” says Binoche Chan, chief operating officer at List Sotheby’s International Realty in Hong Kong.

Despite changes in economic conditions, property developers remain confident that trophy assets in prime locations can buck the trend and continue to appeal to the region’s richest.

After a few years of anticipation, 90 Repulse Bay Road finally appeared on the market this year. The Victorian-style gated development consists of 11 three-storey houses configured between 5,347 square feet and 5,915 square feet of saleable floor area. By early October, developer CK Asset had sold three for HK$508.67 million, HK$495.95 million and
HK$467.15 million.

Cannas Ho, assistant chief manager of sales at CK Asset, believes buyers will be impressed by the location, design, views and privacy offered by the development.

Market conditions may change from time to time, but the properties are positioned as “timeless architectural masterpieces to be passed on from generation to generation”, she says. “An architectural gem of this square footage, found in this prime waterfront location, is extremely difficult to come by.”

Launched in June, Nan Fung Group and Vervain Resources are selling the luxury flats at 8 Deep Water Bay Drive, a 52-unit complex built along the contours of Shouson Hill.

Typical units range from three to four en suite bedrooms, with saleable areas from 2,865 square foot to 4,214 square foot. In October, a 4,214 sq ft flat sold for HK$287.7 million – which is around HK$68,272 per square foot.

“Since the supply of new homes in Deep Water Bay Drive will remain constrained in the foreseeable future, we prefer selling these prime assets at the right time and the right prices. Pricing is based on those at our ultra-prime project, Mount Nicholson, on The Peak,” says Victor Mak, director and general manager of property at Nan Fung Development.

In November 2017, a big-ticket deal set HK$100,000 per square foot as the new benchmark for the Southside housing market. A 4,720 sq ft house at 33 Island Road fetched around HK$480 million, or in the region of HK$102,000 per square foot. The three houses sold at 90 Repulse Bay Road were priced at HK$90,286, HK$87,500 and HK$83,600 per square foot respectively.

By lump sum, the sale of a detached property at 39 Shouson Hill Road that occupies a 92,087 sq ft site with 69,065 sq ft of buildable floor area was the largest deal on record in 2018. That translates into an accommodation value of HK$85,847 per square foot.

During the third quarter, secondary market transactions were concentrated in prime locations along Repulse Bay Road, South Bay Road and Tai Tam Reservoir Road, according to Centaline Property Agency. Hong Kong Parkview closed eight sales in that period.

The agent chain added that although buyer sentiment has become weaker because of worries over the trade war and rising interest rates, deep-pocketed buyers are less sensitive to rate increases and demand 2 per cent to 3 per cent off the asking price.

Developers previously tended to hold onto their stocks and leave them vacant until the right buyer came along, but the new tax on vacant homes in new-builds is changing this practice.

Investment management company JLL said earlier this year that for developers to cut holding costs, they would probably have to turn some stock units into rentals. The property consultant estimated that more than 1,500 luxury units would be completed over the next two years.

Effective in June, the vacancy tax is levied at 200 per cent of the rateable value — twice the annual rent. Under current market conditions, it translates into about 5 per cent of the price of stock units, referring to those that are not rented out or sold one year after the issuance of the occupation permit.

In addition, property developers are required to put on the market no less than 20 per cent of the total number of units in a project in each round of sales activity. The rule is meant to prevent the practice of drip-feeding.

“Given the increased pressure to offload luxury stock in the short term, and recent improvements in leasing demand, we anticipate more developers will put unsold stock for lease to avoid the tax,” says Henry Mok, regional director of capital markets at JLL. “This trend is likely to be more evident in the top-end of the market since luxury properties typically take longer to sell.”

On the demand side, Chan of List Sotheby’s International Realty said more expat tenants had moved out of the city towards the end of the year, vacating more rental homes as a result. Therefore, she believes the lettings market is turning in favour of tenants, and expects a softening in rental rates.

However, a survey by property consultant Savills still ranks Hong Kong as the most expensive city in which to rent a luxury flat or town house in the Asia-Pacific.

Southern Living

South Island, with its beautiful sea views and bays dotted with yachts and private clubs, is known for its beaches, including Sham Wan, Deep Water Bay, Repulse Bay and St Stephen’s beach in Stanley. It is one of the earliest luxurious residential and resort districts developed by the British in the 19th century.

It is also home to a range of reputable schools from preschool to secondary. The Canadian International School Hong Kong, Singapore International School (Hong Kong) and the Victoria Shanghai Academy are among the best in the city.