House Hunt

May 8, 2012

Hong Kong Island is home to more than 65 per cent of the territory’s luxury residential properties. This tiny island is home to the largest, most expensive residences in the financial hub of Asia. Of these luxury homes on the Island, there are only 2,200 houses, represented by 300 single lot houses and 1,900 townhouses.

In the last two decades, on the back of economic growth and wealth accumulation, there has been an exponential increase in demand for large apartment and houses, while the corresponding supply has slowed to a trickle due to extremely limited available land. In particular, the number of single lot houses is on the decline because on one hand, there has been absolutely no new land supply to cater for this type of development and, on the other, many existing houses are being redeveloped into multiple townhouses. The result is sky-rocketing prices for houses over the period, out-pacing all other types of residential properties. And an unbridgeable gap between houses and apartments has developed.

A 4,000 sq-ft apartment can sell for HK$150 million on The Peak, a similar-sized townhouse can easily fetch $240 million, but a single lot house of this size would carry a price tag of $500 million if any owner cares to put it on the market.

Since Hong Kong has joined the most advanced countries in the world, its elite residents are becoming more affluent, comparable with the elite classes in First World countries. With the value of their investment portfolios ballooning thanks to the robust property and stock markets, Hong Kong’s rich have an increased appetite for bigger and more extravagant houses.

We estimate that there are more than 1,000 wealthy families in Hong Kong that are capable of spending $100 million or more on their principal abode. Apparently, many of them are not living in a house. Adding to the demand side of the equation is the class of newly-rich from mainland China, their numbers swelling significantly over the years.

In the last 20 years, the balance has always been heavily skewed to the demand side, catapulting the resultant prices into stratosphere. Houses have become unaffordable as a home for 99 per cent of the population, yet available stock is far from satisfying the potential demand of the 0.1 per cent people in Hong Kong who can afford it. A serious mismatch exists here.

To address the problem, the new government needs to think out of the box, especially in the wake of increasing populism. Would a little setting back of country park boundaries provide more land for development? Can we make use of the many deserted outlying islands in Hong Kong waters? What about Lantau Island? Lamma Island? Change of use of vast agricultural land in the New Territories? Environmental issues need to be considered, of course, but we also need to provide affordable accommodation and to check ever-escalating property prices.

By Koh Keng-shing