Rising interest rates, increased tourist arrivals and a sudden supply crush… Welcome to Lantau’s 2019 property landscape. Elizabeth Kerr reports
Bucking the trend of 5 to 10% price growth, low interest rates and minimal new supply in the property market this year – as has been the case in each of the last eight – HongKongers can look forward to some serious changes in 2019.
The biggest mover and shaker to make its presence known is, of course, interest rate increases (finally), which have started thei rslow, steady climb after a decade of record lows and negative rate environments. Rates should put pressure on prices, which at the end of 2018 had already come down by 5% en route to an estimated 10% by year’s end (according to Knight Frank) to as much as 15% (JLL). But there is araft of other factors (a protracted Sino-US trade war, a sentiment dampening soft stock market) that are going to play their part in what could be the oddest real estate year in recent memory – particularly for Lantau.
“The opening of the Hong KongMacau-Zhuhai bridge will be themain factor in attracting residents to Lantau in the coming years,” says senior director residential services Savills, Edina Wong. But there’s more happening than just bridge openings.
Lantau has long been the target of government development plans, with massive infrastructure projects (trains, landfill) focused on the island. And Discovery Bay isn’t far behind with a rash of ‘upgrades’ designed to keep the district competitive with emerging lifestyle hotspots such as Kennedy Town and Tsuen Wan West. Supply will be an issue on Lantau, where changes in theadministration at the marina in Discovery Bay flooded the market, with dozens of families looking to maintain a lifestyle they actively sought in the past, but with a marked dearth of properties to choose from. (A similar process is happening at Hong Kong Gold Coast.)
Of the 100,000 new units set to hit the Hong Kong market overall between now and 2023, Knight Frank puts none of them on Lantau, though Savills notes six sites across the island (Mui Wo, Cheung Sha, San Shek Wan) that should be ready in that time frame. Five of those, however, comprise fewer than 21 units.
Lantau has a modicum of room to grow but DB has been more restricted in its expansion, with the last new development coming in DB North (Amalfi). “I would assume, based on the bridge and subsequent traffic, the overcrowded Tung Chung area and particularly Sunny Bay area will develop and grow quickly,” theorises Nina Schulte-Mattler, manager at property portal Okay.com. “Up to now, the population of Discovery Bay has been capped by the Hong Kong Government. Should that change, there will be room made to develop more houses, low- and high-rises in DB.”
For now, DB is relying on those aforementioned upgrades to hold its value. By the end of the year, DB should be able to boast better traffic safety by eliminating the existing bus terminus, a new footbridge between Discovery Bay Road and the shopping arcade, new parking for golf carts at the recreation club and shopping arcade, 23,000 additional square feet of public landscaped area and a beautified 100-metre waterfront promenade. DB Plaza is getting a facelift – and a skating rink.
“Upgrading and renovating in regular intervals is a must for owners if they are to maintain the value of the property. This will affect the desirability of living in DB, and if demand continues to grow, affect rental trends,” says Edina.
For this year, however, demand will be affected by global economic headwinds, like slowing growth in China, that will keep rents steady but push prices down. Rents rose just 1.1% in 2018, compared to a whopping 15.5% in 2010.
The marina market did create a spike in the demand for rental properties in the last quarter according to Nina, and Edina agrees that some marina residents, primarily families with children in school and business interests in DB, opted to stay, while some are moving to other parts of Hong Kong – Tung Chung, Peng Chau, Sai Kung. “This demand has definitely outstripped supply, resulting in pushing rents up. However, the increase will be affected by affordability. If rents are comparable to those in other areas, prospective tenants could opt for more convenient districts.”
The sudden influx of tenants from the marina was felt most intensely in rental rates, where negotiation fell by the wayside, but that blip has since flattened out. “There were a few cases where some landlords achieved higher rentals due to the extra demand at the time,” admits Headland Homes’ Chris King of the third quarter rental crunch. “However, we viewed this as temporary, and things will return to normal.”
Specific property types – flats and duplexes with gardens or terraces – have been taken up by tenants who can afford the jump to land,leaving little in the market for new arrivals, a traditionally strong tenant pool for DB.
But as Nina argues, a bigger looming factor for DB rents and values is the proposed suspension of the ferry service at 11.30pm to be replaced by a bus service. “That may play a part in the attractiveness of DB for young expats and potential buyers from other parts of Hong Kong,” she says.
Hong Kong Resort, however, believes the replacement of the late-night ferry by bus services will be beneficial to the greater DB community and will be a more efficient option in terms of resources utilisation. “The proposed bus services will provide direct access to 70% of DB households as compared to 20% by the existing late-night ferry. Residents can also enjoy more frequent services at a lower price,” a spokesperson said.\
Additionally, of course, a bus route could be a way to exploit the tourism Lantau is expected to receive as a result of the opening of the Hong Kong-Macau-Zhuhai bridge. One way or the other, DB is shaping up to be the last dining and shopping stop for tour buses from Zhuhai. “I believe over the next few years we will see a big demographic shift in the DB population and modes of transport,” states Nina.
But as is usually the case with Hong Kong, the city will prove its resilience; the sky is not falling (though it may have felt that way to former marina residents in recent months). Interest rates will climb from a negative environment to a positive one slowly, not suddenly, and despite the rise will remain at historic lows. An overdue market correction should put the prices in a stable phase, not crash mode. Investors need not worry.
“Of course, we think DB is special and will always attract investors largely due to the lifestyle it offers,” says Chris. “However, we think all of Lantau has a great future, largely again down to connectivity to China, Macau and the expanding airport… We hope the planning is kind to the topography and natural beauty of the island. We think this then will definitely be one of the new hot spots for investment.”
Photos by Andrew Spires and Baljit Gidwani- www.evoqueportraits.com, and courtesy of www.wikimedia.com