What’s in store for South Lantau property in this new Year of the Pig? Elizabeth Kerr reports.
Late last year, prognostications for Hong Kong’s property market overall in 2019 were bleak. A Sino-US trade war was impacting commercial rents, a slowing Chinese economy was flattening tourist spending (even with strong arrival numbers), and interest rate hikes and a wobbly mid-year stock market performance were negatively affecting sentiment. By December, Knight Frank had projected a 10% dip in residential markets. Savills estimated up to 10% in the luxury sector. JLL put the figure at a stiffer 15%. And Colliers International made its forecast in January – after a late year rally – estimating anywhere from 2 to 4% drops by the end of 2019.
“Everyone is waiting – to invest or to buy a home. And that indicates continuing demand in the market,” begins Hannah Jeong, Colliers’ head of valuation and advisory services. “So, the question becomes one of how much further will the market dip? How long will it go on?” Indeed, with Christmas and two New Year holidays making for a traditionally slow season, it’s still anyone’s guess as to whether Hong Kong is looking at a sustained correction or a typical blip in the radar that will see prices spiking again come summer.
Mui Wo is undergoing gentrification
A short-term adjustment
Hong Kong has been ranked the least affordable city in which to live in the world for the ninth year running by the Demographia
International Housing Affordability Survey. According to the survey it would take the average Hongkonger over 20 years to save enough to buy a flat outright, and there are rumblings that the market is already set to rebound. In some cases predictions are for 15% gains by the end of 2019.
“We believe the current fall of residential prices is more likely a short-term adjustment, driven by weak buying sentiment,” said Colliers in a weekly Market Intelligence report in January. “A healthy labour market, positive economic growth, and a supply shortage should support residential price growth in the longer term.”
Whether or not prices recover to outpace 2018 remains to be seen, but prices are cooling, and developers could be toying with the idea
of maintaining the discounts they’ve been offering as incentives (along with generous loan-to-value financing). Land sales are being adjusted down, but profit margins are still healthy according to Colliers’ Hannah. That could keep first-hand residential prices under control, though Hannah doesn’t expect any relaxations on lending restrictions and the cooling measures of the past five years, something she calls disappointing.
JLL executive director Joseph Tsang agrees, arguing the measures are now redundant, and hurt the crucial secondary sector. “At the moment there’s no need for any protection because the market is going down. Those measures are there for when the market is hot. All these measures are a burden now. It’s like diving. When you dive you need all this lead to weigh you down but when you want to surface it’ll drown you. There’s no speculation at the moment, and the Special Stamp Duty deters owners from selling if they need to.” Joseph warns of a worst-case scenario of prices falling off 25%, but stresses that’s still in correction territory.
“Without being able to predict the future, I believe this is a correction,” echoes Kelly Merrick at HomeSolutions Real Estate in Lantau. “A contributing factor to this correction was uncertainty of financial institutions regarding the interest rates. Banks started tightening the lending practices due to this concern. This concern seems to have decreased in recent months and banks seem to be lending again.”
Home prices fell 2.4% in December, indicating price falls may be moderating and bringing the year’s tally to just below 10% since the correction seemed to begin in July.
Pui O’s appeal lies in its community feel
Time to remove the roadblocks
So where does that leave Lantau in the grand scheme of things? “In South Lantau prices are quite similar to prices in 2018; we typically do not see the market changes as quickly as larger areas of Hong Kong. The number of sales transactions has backed off a bit Hong Kong-wide since September, as people were waiting to Village houses in Mui Wo at dawn see if prices would change,” notes HomeSolutions’ Kelly, adding that enquiries and interest have picked up since the last quarter, with potential clients hoping to catch the low end of the cycle before it heats up again.
But other factors are now realities that will soon have quantifiable influences on Lantau, the least of which includes the presence of the now-operational Hong Kong-Zhuhai-Macau Bridge (HZMB), a seemingly unshakeable commitment by government to landfill off Tung Chung, and aggressive new development in Mui Wo and Cheung Sha.
Lantau has long been a lifestyle location – affordable and convenient for middle-class families, green and low-key for those seeking space and nature, and increasingly luxurious thanks to developments like Riverwalk, WHITESANDS and Botanica Bay. So far Lantau has ranked low on investor wish lists, but the HZMB, which connects Hong Kong to the Greater Bay Area initiative, could change that.
The island still presents as a better value option – prices per square foot are more varied – and rental yields are strong. Of course, investment can potentially mean speculation, which can bring the market back to square one. However, Kelly agrees with JLL’s Joseph that it’s time to remove the roadblocks from residents’ paths to purchase.
“With more people forced to rent while they wait for permanent residency (versus paying a larger stamp duty), the demand for rentals has gone up,” Kelly adds.
With demand up, supply could potentially get pinched. “Last year, we saw international families that were targeting HK$55,000 to HK$75,000 per month reduce to a sweet spot of HK$50,000, which gets roughly 1,000 square feet. We think that shift is going to stick,” theorises Letizia Garcia Gasalino, head of residential services at Colliers.
“In South Lantau, families can rent a 2,100 square-foot village house with a 700 square-foot rooftop for between HK$35,000 and HK$50,000,” says Kelly. “Some homes include gardens and/ or nearby parking.” On top of that, quality schooling options across Lantau are adding to the demand. Families are willing to move to villages like Mui Wo, Pui O and Cheung Sha even if it means mum and dad have to travel farther to the office.
As Kelly sees it, the rental boom defeats the purpose of the cooling measures, which was ostensibly about bringing prices under control. “We believe that loosening purchasing restrictions for all residents would decrease rents and stabilise the sales market. We would recommend a smaller percentage of the purchase price being cash for permanent residents to assist them when buying their first home. Many families would be able to afford a mortgage, but do not have the cash needed for a 30% to 50% down payment,” she says.
Aggressive new development in Cheung Sha
Easing the parking crunch
Regardless of who can or cannot purchase a property, Lantau’s future remains relatively bright. The natural environment that attracts residents is still there (at least for now), and the closeknit local communities, in locations such as Mui Wo, Pui O and Cheung Sha, are welcoming to expats, making the villages a magnet for newcomers to the city.
Increased tourism is likely to stoke the micro economy and increase housing demand across Lantau. Kelly cites new villas springing up in South Lantau as evidence of growth, as well as new land tenders totalling as much as 110,000 square feet of residential space.
But there will be challenges. The ongoing land shortage cuts across all districts, and more interest rate hikes, no matter how incremental, will mean less cash on hand for some owners. On a more prosaic note, Kelly lists a parking crunch and road capacity as challenges Lantau will need to overcome.
“If I could make an appeal to the government, I would recommend that they build numerous multi-storey parking garages for cars and bikes on Lantau,” she emphasises, arguing they would reduce illegal parking as well as address a need in a part of the SAR that is a bit more car-reliant – safe car and bike parking is a must. The government is indeed expanding its parking capacity, but according to Kelly “it’s not enough for current demand, much less any population growth.” And we know how bullish the government is on Lantau’s population growth.
Swire’s WHITESANDS in Cheung Sha
•Colliers International. www.colliers.com
• HomeSolutions Real Estate, www.homesolutions.hk
• JLL, www.jll.com
• Knight Frank, www.knightfrank.com
• Savills, www.savills.com
• Sino Land, www.sino.com
• Swire Properties. www.swireproperties.com
Tags: commerical, Hong Kong, housing, interest, market, property, South lantau property, tourist