Mid-Levels site could hit record HK$10.9b

HONG KONG: A luxury residential site in Mid-Levels slated for sale this year could set a land price record in Hong Kong, believe some property watchers.

It could also bring sky-high expectations about the outlook for further strong growth in property prices back to earth with a bump.

The 1.05-hectare site at 21, 23 and 25 Borrett Road commands views of Victoria Harbour view. It is conveniently located in a neighbourhood that offers access to several international schools and is also one of the few large development sites in Mid-Levels areas that are still available for sale.

When it was first put on the application list six years ago — opening it to bids from developers that for a variety of reasons never followed — surveyors estimated the site was worth HK$7.1 billion (RM2.77 billion), or HK$12,500 per sq ft.

Following the recent sustained growth in luxury housing prices, surveyors now set the value of the site at HK$10.9 billion, or HK$25,000 per sq ft.

The belief among some analysts that the Borrett Road site would set a record land price for Hong Kong has remained unshaken even after the government increased the supply of luxury residential sites to cool the overheated property market.

Are they over-optimistic about the outlook for the luxury residential market? Or is the market still on a strong upward path?

The market's record is impressive. Prices at 35 luxury housing estates have risen by 26.5% from 2008 to January this year, according to property agency Ricacorp Properties. Patrick Chow Mun-kit, head of research at the firm, said he expected prices of luxury properties to rise a further 15% this year, but after the strong start to the year he has revised that higher.

"It is pretty scary that the prices of houses on the Peak and Island South have already reached HK$70,000 or HK$80,000 per sq ft," said Joseph Tsang, managing director at property consultant Jones Lang LaSalle in Hong Kong. At that level they have surpassed the price level recorded at the market peak in 1997.

Tsang too expects prices will continue their strong growth this year, supported by low interest rates and a continuing influx of mainland buyers.

The luxury residential market has benefited from these two factors over the last few years and driven by strong demand has recorded a sharp increase in prices. But now market talk is of a rise in interest rates in the second half of this year and slower demand from mainland buyers.

Is the party over for luxury residential property?

"Mortgage rates were around 12% in 1997. Even if the existing mortgage rate doubled to 4%, it is still far below the level in 1997," noted Tsang.

On the other hand, the influx of mainland buyers has become a major concern for the market after the government raised the investment hurdle under its Capital Investment Entrant Scheme in November last year. Foreigners seeking the right to stay in Hong Kong by investment must now invest at least HK$10 million in financial markets other than the property market.

No one disputes the fact that the rise in luxury property market prices will end if the number of mainland buyers drops. What are the chances of this happening?

Eddie Kwan, managing director at an immigration consulting firm, said he had had fewer mainland clients with the advent of the government's new immigration policy.

"However, the number rebounded significantly after Chinese New Year," he said.

"Mainland cities such as Guangzhou and Shanghai have imposed restrictions on buying second and third homes, which has caused mainland investors to refocus attention on the Hong Kong property market. Also, stock analysts expect the Hang Seng share Index will climb to above 28,000 points this year, which will offer a higher upside potential than mainland stock markets. So despite the increased immigration hurdle, the influx of mainland buyers will continue in the next few years. It won't change."

Kwan said Hong Kong was likely to remain a popular investment destination for mainlanders the currency differential favoured them and there were fewer restrictions on investment here.

Jones Lang LaSalle's Tsang said his firm had not noticed a decline in the number of mainland buyers of Hong Kong property in recent months, even though banks on the mainland banks had tightened loan conditions.

He estimated that more than half the buyers who bought flats priced at HK$30 million or more were mainlanders, and expected the influx of mainland buyers to continue in the next few years. "As a result luxury property prices will surge a further of 20% this year," he said.

While David Ng, head of regional property research at The Royal Bank of Scotland, is cautious about the outlook for the mass residential market, he shares the optimism of many commentators about the luxury residential market.

"I would not be surprised to see the Borrett Road site sold for a price higher than market expectations," he said. "Luxury residential prices will continue to grow due to the influx of mainland buyers." — SCMP