By Elizabeth Kerr
With the exception of a few major market shocks over the last two decades, Hong Kong has seen its property market ebb, flow and bounce back robustly, making it a strong capital gains market. For investors, specifically speculators, the residential sector was once a favourite, with flats previously bought and sold at incredible gains on a single day.
But that was then and this is now, and Hong Kong is in a very different position than it was just a few years ago. Trend-setting institutional investors have exited the residential sector in favour of more lucrative pastures in commercial and retail, and tenants are opting to decentralise. Since 2003, residential property has been the purview of end-users, who are casting a net wider than Central and its immediate vicinity, making locations such as Lantau attractive and viable options for living and investing.
Lantau has a raft of purchasing pros and cons. Concentrated mainly in Tung Chung and Discovery Bay, with smaller towns in South Lantau, residential real estate’s chief pro is cost, the island’s properties offering better rental yields than Hong Kong Island.
A positive financial outlook
According to Kelly Merrick at HomeSolutions Real Estate, village houses in South Lantau can be found for as little as HK$4,700 per square foot. That’s a considerable difference, particularly given this May’s directives from the Hong Kong Monetary Authority requiring 50% down payments on second (read: investment) mortgages, as well as a 15% stamp duty for all second homes regardless of residency status.
The returns are positive too. “South Lantau has many properties between HK$2.5 million and HK$4 million where the return is between 4 and 6% for investors,” says Kelly. “This is quite good for the Hong Kong property market,” she explains [the typical Hong Kong yield stands at just 2 to 3%].
Other factors recommend Lantau as well: many of its developments are relatively new, keeping repair and renovation costs to a minimum, and a growing population has given rise to strong school networks and public amenities—a must for end-users and investors seeking tenants. “In Tung Chung, because of all the small units being built, rents are relatively lower than most parts of Hong Kong, and because there’s such a large supply I think rents will be stable,” theorises Savills’ Head of Residential Services, Edina Wong.
Edina is also quick to dispel the myth that Lantau is inconvenient for commuters. “If you work on the island, a 25-minute ferry ride is actually preferred. It’s not cramped, it’s on time, and I know your life is governed by a schedule, but you will be anyway if you’re taking a train or the MTR from [farther afield]. We’re seeing quite a lot of staff in grade-A buildings in Central, who actually prefer to go to Discovery Bay.”
Lantau’s other great residential destination is South Lantau, quietly making a name for itself as a more affordable alternative to DB and prime spots like Repulse Bay. “Living in Discovery Bay or South Lantau is simply a personal, lifestyle choice. [We] often have families move to South Lantau from Discovery Bay,” begins Kelly. “We have village houses, villas and luxury living available. WHITESANDS has created more choice for luxurious, larger homes for families to purchase or lease.” Kelly calls South Lantau a hidden gem for its sandy beaches, greenery, peace and family-friendly community living.
Long-term investment potential On the north side of the island, a large chunk of Hong Kong’s new supply is rising in Tung Chung (like Century Link’s second phase), and with prices already lower than Kowloon, developer incentives are tempting for buyers and investors alike. On top of that, the Tung Chung New Town Extension (nearly 50,000 flats), the forthcoming Hong Kong-Zhuhai-Macao bridge and the expansion of Citygate make Tung Chung an investment option akin to Wong Chuk Hang and Kennedy Town on the heels of their infrastructure improvement announcements. “I think the investment is in Discovery Bay. The lifestyle is attractive,” says Edina. “But on the lower end Tung Chung is attractive because they’re all newer properties.”
For investors, leasing potential is crucial, however for cash buyers looking to the long term, a supply imbalance works for bigger units across Lantau. “In recent years, no one has built anything that’s over 2,000 square feet… As people look to upgrade, they realise there’s not much on the market,” says Edina, adding that this will likely lead to a rebound in select second- hand sales. “People are not going to stay in 200 square feet for long.”
Kelly agrees. Tung Chung is a good entry point and a smart investment, but its ‘Hong Kong lite’ vibe will keep buyers keyed on the rest of the island. “Once people move to Lantau, they usually comment on how they wish they would have moved out here sooner,” finishes Kelly. “We are optimistic about the long-term viability of property investment in South Lantau.”