HK property on the fast track to recovery

Source : Business Times – 29 Sep 2009

Home prices 26% up this year, erasing Q4 ‘08 post-Lehman loss

Hedge fund manager Pan Lin Feng and two friends sensed opportunity when Hong Kong property prices plunged 20 per cent last year after Lehman Brothers Holdings Inc collapsed.

In November, they bought a 1,500 square foot apartment, more than double the size of a typical Hong Kong flat, in the affluent Mid-Levels district for HK$9.8 million (S$1.8 million) from an owner shoring up stock and property losses. In July, the trio was offered HK$15 million.

‘It was a good deal,’ Mr Pan, 33, said. ‘It was real luck and everyone has benefited since.’

Hong Kong home prices are up 26 per cent this year, erasing losses posted between the Sept 15, 2008 demise of Lehman Brothers and Dec 31, 2008, according to the weekly Centa-City Leading Index. Mainland Chinese buyers and record mortgage rates lower than London and New York enabled Hong Kong to recover while the other financial centres struggle.

Hong Kong is the world’s fifth-most expensive residential real estate market, after Monte Carlo, Moscow, London and Tokyo, according to Global Property Guide.

The average value of all Manhattan apartments sold in the first six months of 2009 fell 12 per cent from a year earlier, according to figures from Prudential Douglas Elliman Real Estate. Average home prices in London rose 0.3 per cent in the first seven months, according to the UK Land Registry.

Hong Kong property recovered faster because its banks are healthy and residents save money, said Khiem Do, head of the multi-asset group at Baring Asset Management (Asia) Ltd, which holds US$7 billion in assets, including shares of Hong Kong and China developers.

Banks cut mortgage rates to their lowest in 19 years, with some offering loans with a one per cent interest rate, and the increasing number of customers helped boost property prices.

‘In Manhattan and London, if you see a great deal and you want to borrow from the bank, you’ll find it difficult,’ Mr Do said. ‘In Hong Kong and Singapore, the banks will be happy to lend.’

Cindy Gan, a communications manager, said local banks undercut each other competing for her mortgage for a HK$3.8 million apartment near Causeway Bay in May. ‘They would counter-offer by improving the cash rebate and providing free first-year insurance,’ she said. ‘It was all about sweetening the deal.’

She chose a 15-year loan with ICBC (Asia) Ltd starting with a one per cent rate.

The Hong Kong Monetary Authority (HKMA), the de facto central bank, warned lenders this month that their ‘intense price competition’ on home loans wasn’t sustainable.

Financial services in Hong Kong suffered fewer job losses than in New York or London. The number of people employed on March 31 was 181,860, the Census and Statistics Department said. That’s down 10,840 since 2007.

New York City is projected to lose 68,300 finance jobs in 2008 and 2009 combined, according to the New York State Department of Labor.

In London, those losses will total an estimated 57,000, the Centre for Economics and Business Research said in April.

Luxury homes in Hong Kong outperformed the housing market as tycoons snapped up properties, said Wong Leung-sing, research director at Centaline Property Agency Ltd. Prices of homes worth at least HK$10 million rose 30 per cent this year, he said.

‘It’s reflecting not only a buoyant economy, but also the shortage of new supply in an extremely limited pipeline in the luxury market,’ said Simon Smith, senior director of research at Savills LLC in Hong Kong.

In July, a house in Sky High on the Peak, the city’s most expensive residential area, sold for HK$300 million, making it this year’s most costly at HK$41,500 per square foot, said Benedict Ma, an analyst at CB Richard Ellis Group Inc. Sky High has four homes ranging in size from 540 to 620 square metres.

Sun Hung Kai Properties Ltd, Hong Kong’s biggest developer by market value, raised prices of two penthouses at The Cullinan project by 50 per cent. The 4,000 sq ft apartments are offered for HK$300 million, or HK$75,000 psf, each, said Victor Lui, executive director of the company’s real-estate broker.

That would be the world’s second-most expensive price after a Monaco developer asked for the equivalent of HK$100,000, said Xavier Wong, head of research for Greater China at Knight Frank.

Those amounts signal a price bubble in Hong Kong, said Francis Lun, general manager at Fulbright Securities Ltd.

‘The property developers are charging unconscionable prices and making obscene profit,’ Mr Lun said. ‘Those luxury properties are bought by mainlanders as trophies.’

Luxury home prices may rise another 10 per cent the rest of this year because of low interest rates and improving stock markets, Mr Ma said. The most ever paid psf for a local luxury house is HK$56,000 in June 2008 for Severn 8 at the Peak, another Sun Hung Kai project.

‘It’s hard to put a cap on the luxury end as you can’t use affordability ratio for any tycoon,’ said Buggle Lau of Midland Holdings Ltd, real estate firm.

Prospective buyers lined up outside The Masterpiece, a high-rise across Victoria Harbor from the Central District, for apartments with 180-degree views of the skyline. A mainland Chinese client paid HK$150 million, or about HK$37,000 psf, for a furnished 4,088 sq ft show flat, said Jeff Lau, senior sales and marketing manager for builder New World Development Co.

A local businessman paid HK$24.5 million, or HK$30,025 psf, for a one-bedroom, 816 sq ft apartment there.

The overall home index may rise another 7 percentage points for an annual gain of 30 per cent, Mr Wong said.

Interior designer Andrew Bell moved to Hong Kong two years ago and bought a 40-year-old walk-up apartment in the trendy Soho district. He sold the 400 sq ft unit last year for HK$4.5 million, double what he paid.

He then bought a 260 sq ft unit last month for HK$2 million. He hopes to rent it for HK$25,000 after furnishing it with Qing dynasty antiques.

‘A lot of people think I’m crazy for buying this place,’ Mr Bell, 53, said. ‘But I really have confidence because everybody is really thanking God that the crisis is over.’

Hong Kong home prices rebounded faster than the stock market. The weekly measure by Centaline and the City University of Hong Kong recovered to levels before Lehman’s collapse by June. The Hang Seng Index reached pre-collapse levels about a month later.

Hong Kong’s yearlong recession ended last quarter, when a boost in export demand from China helped the economy grow 3.3 per cent from the previous three months. Sales of all residential apartments in August almost tripled to HK$41 billion from a year ago, Land Registry figures show.

The number of sales agreements on luxury residences more than tripled to 500, the agency said.

The average size of a Hong Kong flat is about 700 sq ft, Knight Frank’s Mr Wong said. An apartment larger than 1,000 sq ft is considered a luxury flat by local industry standards.

Mr Pan and his friends paid about HK$6,533 psf. They rejected the HK$15 million offer for their 27-year-old flat, where the monthly rent triples the mortgage payment.

‘We think there’s more upside if we wait,’ Mr Pan said.