Uneven recovery in Hong Kong mass market

HONG KONG: The secondary housing market here has shown a patchy recovery from the collapse of prices that followed the 1997 Asian financial crisis.

On Hong Kong Island, prices in Taikoo Shing in Quarry Bay and City Garden in North Point are now close to the peak levels reached before the crisis saw prices collapsing by up to 67% across the market.

The Island rebound has been much higher than the recovery recorded in Kowloon and the New Territories over the past 13 years, however, and for the overall mass residential market, prices are still 21.3% down on the 1997 peak, according to the widely used barometer of home prices, the Centa-City Leading Index.

The weekly index, which is based on Centaline's current preliminary contract prices, set 1997 prices at 100. On April 9, it stood at 78.64 - still 21.3% below the 1997 level. In the luxury residential market, by contrast, prices have already rebounded above their 1997 peak levels.

In the secondary market, Taikoo Shing and City Garden are now expected to be the first two mass housing estates to break through the 1997 peaks. Midland Realty research shows the average prices of flats in Taikoo Shing and City Garden in March were within just 3% and 4% respectively of their previous highs achieved in November 1997.

In Taikoo Shing, average prices reached HK$8,180 (RM3,375) psf last month, up 7.69% from the end of last year. "We will see average prices of the two estates exceed the peak levels this year," Wong Leung-shing, an associate director of research at Centaline, said.

In some isolated cases, those previous peaks had already been breached, Centaline sales director Patrick Tsang said. "The larger 1,237 sq ft flats in the area are the only ones that come with a maid's room. In recent months the prices of these units have reached HK$14 million, which is a record," he said.

By contrast, prices in housing estates in Kowloon and New Territories have a long way to go before they breach their previous highs set in 1997. Helped by an influx of investors, prices in Laguna City hit HK$7,255 psf in November 1997. But the current average price is just HK$4,780 psf -- still 35 per below the peak level reached in August 1997. And prices in the estate have risen just 2.6% in the last three months.

In City One in Sha Tin, the average price in February was HK$4,449 psf – 26% below the market peak.

Buggle Lau Ka-fai, the chief analyst at Midland, said the reason that prices of housing estates on Hong Kong Island were now close to the market peak level was tight new supply of flats and development sites in good locations.

"It is difficult to find a large-scale residential site for sale on Hong Kong Island, the new supply is also limited to luxury residential," he said.

This shortage has forced home seekers to look to mass housing estates, added Centaline's Wong. Buyers were able to make this decision because they were generally better off and average household incomes on Hong Kong Island ranked top in the city.

Economist Kwan Cheuk-chiu said prices in Kowloon and the New Territories were usually 20% to 30% lower than prices on the Island. He expected that prices in a few major housing estates on the Island would exceed their 1997 market peaks in the second or third quarter, while the Centa-City Leading Index would rise by then to 85 or 86 points.

But he said home seekers should be cautious about price trends. "Property prices will continue to rise in the short term as a bubble is forming in the market. But this may change. And it may become horrible once the bubble bursts," he said.

This is a harsh lesson still being suffered by those who bought into new projects at the peak in 1997. Two such estates were Villa Esplanada in Tsing Yi, and Discovery Park in Tsuen Wan. Average prices in Discovery Park in November 1997 were around HK$7,747 psf and in March this year were only around HK$4,518 psf -- still 42% below their 1997 levels. At Villa Esplanada prices are still 22% below their 1997 peak.

Data also shows that even being located on Hong Kong Island does not guarantee a better performance for new releases. Units in the Legend in Tai Hang, released for sale in 2007, were bought at prices ranging from HK$16,200 to HK$21,000 psf. But prices achieved in secondary sales in the development in recent months have fallen to as low as HK$12,000 to HK$13,000 psf.

Wong of Centaline said buyers of new projects would have to be patient about achieving an appreciation in capital value for their flats.

"Developers are selling at prices that might be realised three years on. This means they have considered the upside potential of the flats in the next three years. If buyers are looking for a capital value gain, they should be prepared to wait for three years," he said.

Economist Kwan said the latest market movements seemed to be following the same path taken in the run-up to the 1997 collapse of prices. "Home seekers today have a similar mentality to those who bought flats in 1997. They worry that property prices will rise further and so decide to buy, which boosts prices sharply. But they are neglecting the key element that supports property prices, namely household income. They are no longer questioning whether salary rises could catch up with the property price surge," he said.

Even if salaries were to increase by around 3% this year, this would still lag the rise in property prices, he warned. Last year, the median household income for Hong Kong was HK$17,500 a month, still 6% below the median income measured before the global financial crisis happened in October 2008.

In 1996 and 1997, the median household income was around HK$20,000 a month. – South China Morning Post