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On the brink: what does the future hold for Lantau’s property market?

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As Hong Kong gears up for what will likely be another record-breaking property year, Lantau is set to become either a haven or a perfect microcosm. Elizabeth Kerr reports.

With 2017 in the rear-view mirror, the one certainty of the year gone by was that it did its part to contribute to Hong Kong’s staggering residential property price growth, all told an eye-watering 405% since 2003 – and a course correction in 2018 is unlikely.

“Demand for mass residential will remain strong, though sales momentum will slow given the strong growth in housing prices this year and the expected interest rate rise,” sums up Joseph Tsang, managing director and head of capital markets at JLL. Joseph is also quick to argue that the potentially fatal flaw in Hong Kong’s residential market – the weak secondary sector – remains unaddressed, and that it’s time for the government and the Monetary Authority to revisit their cooling measures, in order to unlock the massive (1.2 million-unit) secondary market.

“We believe residential capital values will rise by about 10% in 2018, but potentially by as much as 20% under the right circumstances,” Joseph adds.

The supply-and-demand dynamic remains a key driver in Hong Kong real estate. Office rents in Central, for example, exceeded 2008 peaks in 2017 (now approximately HK$118 per square foot per month), due to sustained demand from incoming PRC firms and limited vacancies. The residential sector mirrors that dynamic, including on Lantau, where residential planning has taken a back seat to commercial interests, as outlined in the government’s mid-2017 Sustainable Lantau Blueprint.

According to Knight Frank, of the estimated 100,000 new residential completions expected between 2018 and 2022, the majority will be in the New Territories (29% in Yuen Long, Sha Tin and Tuen Mun alone), with little figuring into the mix on Lantau. Additionally, much of Lantau’s future development is connected to the government’s increasingly controversial 2030+ plan. The Tung Chung expansion and proposed East Lantau Metropolis are still on track, the former potentially the future home of 20% of the island’s (eventual) one million people.

Commercial prospects

tung chung

No one is saying that Lantau is heading for stormy real-estate seasin 2018, but much of its future growth will be rooted in Tung Chung’s commercial prospects. Research (by JLL, Savills, Knight Frank and Colliers International to name but a few) indicates Hong Kong may finally have turned a corner on the retail front, with international tourist arrivals up 2.7% in 2017, and crucial PRC same-day arrival spending up as well.

Rents at premium shopping centres should finally rise up to 5% this year, after plunging as much as 37% in 2015. The retail sector can expect non-core shopping areas to become increasingly attractive to retailers entering the market, as well as existing operators looking to expand. That’s good news for Newfoundworld (Swire Properties and its partners Hang Lung Properties, Henderson Land, New World Development and Sun Hung Kai Properties). The group can be seen to be committing to Tung Chung’s future position as a travel and residential hub with its expansion of Citygate Outlets.

Already a stop on most tourist itineraries for outlet shopping – the first in Hong Kong – and an essential destination for Tung Chung residents, the revitalised Citygate will add a hotel, upgraded cinema and 100 shops in roughly 480,000 square feet when complete later this year.

Citygate general manager Chris Heywood admits Lantau’s commercial future will increase both tourist numbers and the residential population, in the Tung Chung area in particular. “We’re confident that the expansion of Citygate will add to Lantau’s overall development, and will immerse local residents and tourists in exciting new lifestyle offerings,” he says.

Downtown residential

With Citygate as its cornerstone and a key to overall growth going forward, Tung Chung has become popular with Hongkongers of all stripes. At the lower end, you’d find few other flats near MTR stations available for as little as HK$9,000 per square foot. Among the last completed developments, Nan Fung Group’s The Visionary and Sun Hung Kai’s Century Link all sold well and represent one of the city’s few strong secondary submarkets.

visionary tung chung

Ironically, Tung Chung could become a hotbed of activity given the availability of flats larger than the proverbial shoebox. Vincent Cheung, deputy managing director of valuation and advisory at Colliers, expects mass residential prices to rise a further 8 to 10% this year, but argues that’s not as horrifying as it appears onthe surface.

“Prices could be going up because a lot of developers have changed their strategies, and are building more medium- to large-sized apartments,” Vincent reasons. “Competition among them is severe, which is why they want to build more flats from 500 square feet, to capture the remaining purchasing power in the market.”

South Lantau living

While infrastructure improvements earmarked for Mui Wo are making the once low-key beach neighbourhood a hot ticket, properties across South Lantau are experiencing demand. Sino Land rolled the dice with the Riverwalk rental development in Mui Wo (and with the record-breaking Botanica Bay in South Lantau), and Swire is in on the act with WHITESANDS in Cheung Sha.


The Riverwalk location, overlooking Silvermine Bay, appealed to Sino for the opportunity to repeat its success with Hong Kong Gold Coast Residences in Tuen Mun, and with occupancy at over 90%, Sino’s been proven right. Mui Wo presents a strong lifestyle location, for its “perfect combination of modern convenience and shore-side living,” explains Sino’s Maria Lam, assistant general manager for leasing.

“Mui Wo enables residents [to live] a world away from the hustle and bustle of the city [and] Riverwalk is surrounded by verdant greenery and the shimmering beach,” Maria adds. Easy access to shimmering beaches and greenery is something residents and investors are willing to pay for, an advantage that’s offset only by Lantau’s perceived remoteness.

With so little new supply coming to South Lantau, it could be that the laid-back, rural lifestyle is transforming the district into a new luxury submarket. Adrian To, residential director at Swire argues that, “South Lantau is fast becoming a luxury enclave of choice among a discerning group of international buyers, who are seeking unique properties in non-traditional locations.”

Of WHITESANDS’ 28 villas, 16 are sold and three have been leased, indicating a healthy market for properties like it. Savills forecasts up to 15% capital appreciation for South Lantau’s luxury flats and town houses this year, with rents to record 5% gains. Adrian also expects residential demand to remain robust despite (probable) interest rate hikes and continued cooling measures. Best of all for the district is the supply crunch.

“The limited supply in South Lantau, together with the Sustainable Lantau Blueprint initiatives, will make quality residential properties more sought-after,” Adrian says. “Looking ahead, the overall residential market is expected to remain stable. We expect premium residential developments, such as WHITESANDS, to continue to be well-received.”


New horizons

As unchanging as Hong Kong’s property market appears to be (land is expensive, prices go up, etc., etc.), it is nonetheless always in flux, and new hotspots emerge. One of those is Peng Chau, just  off the Lantau coast near Discovery Bay.

Anticipating a rapidly developing submarket, Sino has bet big on the sleepy island with leasing developments Paloma Bay and Paloma Cove, on the Tung Wan side.

“We’ve moved quite a lot of people from DB to Peng Chau. It’s very reasonable. You can rent a house for HK$40,000,” argues Savills’ head of residential services, Edina Wong. Indeed, rentals at Paloma Cove villas start at HK$40,000 and Paloma Bay apartments atHK$17,000. Peng Chau is not for everyone but infrastructure is being built, and shops and restaurants are proliferating.

paloma cove

The little island is becoming more attractive to professionals, who travel a lot but want a modicum of tranquillity at home, as well as easy access to Central (there’s a direct ferry). Sino’s Maria notes that a wet market, supermarket, library, sports centre, medical clinic, vet, temple, church, police box and bank are situated within roughly five minutes of the ferry pier.

The primary driver for families looking for property remains proximity to schools – something that is underpinning rental growth in Tuen Mun (near Harrow International School Hong Kong), in Yau Ma Tei (near the forthcoming Malvern College Hong Kong), and in Tseung Kwan O (Shrewsbury International School Hong Kong). There’s not much by way of schooling on Peng Chau, but for the right individuals and families, the island is gaining traction. A lack of new supply since 1997 has made properties like the resort-style Palomas feasible and appealing options.

“They attract strong interest from executives, expatriates and families looking for a tranquil neighbourhood and quality of life away from the hustle and bustle of the city,” Maria reiterates. “It’s a growth market,” finishes Edina. Like much of Lantau in 2018.

As we move into 2018, Kelly Merrick at Lantau realtor HomeSolutions Real Estate sees Cheung Sha as the island’s number one real-estate hotspot.

“Cheung Sha village houses are in particularly high demand,” Kelly says. “If you are lucky enough to find a village house for sale, you can still pick one up for as little as HK$12 million. What’s more, Cheung Sha and Mui Wo are the only two areas in South Lantau with villas, but the starting price for a Cheung Sha villa can be as low as HK$8.8 million.”

While rental returns are in the neighbourhood of 5% in Cheung Sha – an obvious draw for property investors – Kelly points out that rents are still affordable. “The monthly rental on a village house can be as little as HK$35,000, HK$26,000 for a villa,” she says. “Most village houses in Cheung Sha lease for around HK$40,000 per month, villas for HK$35,000 upwards.”

Kelly says that Cheung Sha’s luxury residential sector is also going strong and set to boom even further, with two new developments – one a 45,338-square-foot site behind the Cheung Sha fire station – on the way. “These new luxury developments will join Botanica Bay and WHITESANDS at the top end of the property market in South Lantau,” she concludes.

– HomeSolutions Real Estate, www.homesolutions.hk


Images: by Andrew Spires and courtesy of Swire Properties and Sino Land

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