Hong Kong property

Hand-wringing over sky-high prices

Hong Kong is the world's costliest place to buy an apartment. In the first of a two-part special, The Straits Times Hong Kong Correspondent Li Xueying examines the issues that plague Hong Kong's private property market.

The Straits Times, 6 Sep 2012

HONG KONG - Up on the Peak, set against lush green forest, the Opus shimmers with reflections of the city's famed harbour.

The undulating glass-clad oeuvre of architect Frank Gehry, it made waves last Thursday when it was announced that one of its 12 apartments was sold for HK$430 million (S$69 million).

This makes the 6,755 sq ft unit Asia's most expensive flat on a per square foot basis, and the second-most costly in the world after London's One Hyde Park.

Splendid news for the Opus developer. But for the city's residents, it is yet another statistic that shows how out of whack the property market has become.

Government data shows that the price index began climbing from the first quarter of 2009. It barrelled past the previous 1997 peak, and every quarter since last year has registered new highs.

This means that in just 21/2 years, property prices have increased 85 per cent.

The average price of a standard-sized 600 sq ft apartment is about HK$4.5 million, says Ms Eva Lee, head of Hong Kong and China property research at UBS.

Meanwhile, Hong Kongers' median monthly incomes increased 15 per cent, from HK$17,500 in 2009 to HK$20,200 last year.

One way of measuring affordability is the price-to-income ratio. Hong Kong weighs in at 18.6. This means that a household has to save 18.6 years of its annual income without consumption to buy a standard flat.

By contrast, a four-room Build-to-Order HDB flat in Bukit Panjang takes the average Singapore household three years to pay off, while a resale five-room flat in Ang Mo Kio takes 7.3 years.

In the United States, anything more than three years is considered unaffordable.

It is estimated that Hong Kong prices have to fall by 19 per cent to 30 per cent before the "sandwich class" earning between HK$20,000 and HK$30,000 can have a look in.

No wonder Hong Kongers were waiting with bated breath for promised measures to cool the market. But these left the analysts and industry players cold instead.

Among the 10 points in Chief Executive Leung Chun Ying's proposal, unveiled last Thursday, are that the government will speed up the approval process of presale consent for private flats; sell public flats meant for rental; and re- zone government, institution or community (GIC) sites for homes.

If all goes well, some 150,000 housing units, private and public, will enter the market in the next five years. The number will go some way to plug the gap.

Based on population trends, Ms Lee says Hong Kong needs 25,000 flats a year. With the under-supply of 5,000 flats a year from 2003 to 2009, she estimates that 185,000 units will be needed by 2017.

But a closer look at the measures shows it is unlikely that all the promised 150,000 units will materialise, and even if they do, it will take quite a while.

Brokerage firm CLSA said scathingly that Mr Leung's press conference was a "non-event". His measures raise supply in the coming year by 10 per cent and were "hardly much solid" beyond that, it said in a report.

"Despairing home buyers who have been waiting for a policy reaction from the government to slow home prices will make their way back into the property market - and prices will rise further."

The government's hands are tied, because of some factors.

First, the record-low interest rates. The Hong Kong currency is pegged to the US dollar, meaning that rock-bottom interest rates set by the US Federal Reserve are feeding the city's housing boom as well, notes Dr Edward Yiu of Hong Kong University.

Another key issue is politics. Analysts agree that boosting land supply is the direction to take "but there aren't a lot of sites in the government's inventory".

One interim measure is to rezone the GIC sites, as announced. But it is expected to be a fraught process with opposition from local residents and councillors, and may be difficult for the government to push through, given its low popularity.

Even if successful, it will take two years to re-zone, be vacated, and take another three years to build the homes, say analysts.

Attempts to look at farmland outside the congested city have been stymied.

A project to redevelop 533ha in the North East New Territories to provide 135,000 homes met with protests by farmers and environmental groups.

Ms Lucia Kwong, head of Hong Kong and China real estate research at JPMorgan, notes: "Farmland conversion is a very effective solution, but the process is very slow - cases drag on for decades due to issues such as environmental assessment, the lack of local community support, etcetera."

Without consensus, Hong Kong's long-term land reserves could run low after next year, she says.

All this, even as the government struggles with the sword of Damocles hanging over its head - Mr Leung will remember how he had advocated that former chief executive Tung Chee Hwa build 85,000 flats a year, a policy that was later blamed for the 2003 property market crash.

Hardly any less formidable is the power held by property tycoons and the lack of competition among them. Critics have accused the government of collusion with developers - to keep land supply low and prices high.

Even Mr Donald Choi, executive director of medium-sized developer Nan Fung Group, calls for a change in the law "so that we have a more equal playing field and fairer competition".

He cites how sites at MTR stations are highly sought after. But as the government sells them in large parcels - at HK$10 billion price tags - only major companies can snap them up.

"The government should sell different scales of sites so that big and small companies can participate," he argues.

Meanwhile, what else can be done? Some talk of demand-side measures such as increasing downpayments and having higher mortgage rates for multiple homes.

For instance, a special stamp duty introduced in 2010 to tax buyers who resell their homes within two years could be toughened by imposing it on those who do so within three to five years. Officials say a review will be conducted only next year.

Others suggest converting vacant government lots now used by short-term tenants like carparks.

Last night, the government announced that a committee to ponder Hong Kong's long-term housing direction has met.

Whatever it decides, one thing is clear: More will need to be done.

Additional reporting by Karen Ha

How HK and Singapore property markets compare
IN HONG KONG, private homes make up 52 per cent of the property market.

About 30 per cent of the people live in public rental flats that cater to the poorest, while 18 per cent - the so-called "sandwich class" - live in flats the government sells at subsidised rates, a discontinued scheme that Chief Executive Leung Chun Ying has said he wants to restart.

Thus, for now at least, Hong Kongers who want to own their homes have to look largely at the private property market.

Here is a look at how Hong Kong's property numbers stack up against Singapore's.

- Hong Kong's population: 7.7 million, 52 per cent of whom live in private homes. 

- No. of homes: 2.16 million (1.11 million private units, 728,600 public rental flats and 320,000 subsidised government units). 

- Average price of a standard-sized 600 sq ft flat: HK$4.5 million (S$725,000). 

- Median monthly household income: HK$20,200 

- Price-to-income ratio: 18.6 

- Singapore's population: 5.2 million, 82 per cent of whom live in Housing Board flats. 

- No. of homes: 1.27 million (1.01 million public units and 256,513 private homes). 

- Median price for a five-room resale flat in Ang Mo Kio: $620,000 

- Median household income: $7,037 

- Price-to-income ratio: 7.3

For some, home is a wooden 'coffin'

In the second of two parts on Hong Kong's housing situation, Straits Times Hong Kong Correspondent Li Xueying looks at how the poor in one of Asia's wealthiest cities live.

The Straits Times, 7 Sep 2012

HONG KONG - Just a 20-minute train ride away from Hong Kong's glitzy city centre is Sham Shui Po, the city's poorest district.

On the streets, hawkers sell their wares - three potatoes go for HK$5 (80 Singapore cents) and four cans of beer, HK$11, providing affordable bulk for the stomach and escape for the mind.

Upstairs, Mr H.W. Ng, 35, sits in his home, a wooden box measuring 0.9m by 1.5m - one of Hong Kong's "coffin homes" - which he rents for HK$1,200. It is stacked above another man's, and 61cm away from the next pair of boxes.

Singapore uses "shoebox homes" metaphorically to describe apartments smaller than 500 sq ft. There is nothing metaphorical about these coffins. Dark and dank, they reek of sweat, mould and despair.

Mr Ng is stick thin, his arm's scant flesh bearing a faded tattoo of the Sanrio characters Little Twin Stars. When he was young, he says, his ambition was to become a scientist. But he grew up, was imprisoned for a few months for theft, and is now jobless.

Now, the former delivery boy dreams of "having more money - or emigrating from Hong Kong".

Down south in Aberdeen, round the bay from Repulse Bay, where company honchos and celebrities enjoy their sea-view villas, Mr Vincent Yuen, 32, has a palace, in contrast.

The university graduate has a mini TV set, his own toilet - which he doesn't use because "it would be too smelly in here" - and a chair where he lounges with his iPhone. He lives in what locals call a "subdivided flat" of 40 sq ft, about the size of an HDB flat's storeroom, which he rents for HK$1,800. It is a relative bargain: Rents for similar places range from HK$1,500 to HK$4,000.

Each month, he takes home HK$13,000 as an administrator for Hong Kong political party the Democratic Alliance for the Betterment and Progress of Hong Kong. He is also an aspiring politician - he ran in last year's district council election, but lost.

He lives here, he explains, because he is saving up to buy a home. After seven years of work, he has saved HK$200,000; he needs another HK$400,000 to make the down payment for a small flat, maybe a 300 sq ft space in the same area that would cost HK$2 million. He grimaces: "But first I need to find a girlfriend, and it's a bit difficult. I can live with such conditions, but can she?"

Two young men in their 30s, one a former convict, and another an aspiring politician. Both living in squalor at odds with Hong Kong's wealth.

Today, there are 100,000 to 150,000 people who live this way. Another 12,000 sleep on the streets, estimates Ms Sze Lai Shan, a social worker with the Society for Community Organisation (Soco), which fights for better living standards for the poor.

She allows that things are better than when she began her work 17 years ago, when there were 200,000 people living in such dismal conditions.

Also, more are "moving up" from coffin spaces to subdivided units. The coffin spaces have been around for decades, while the subdivided units started sprouting in 2000. But while more spacious, they are more dangerous due to dodgy rewiring and partitions that block fire escape routes. Notices beseech residents not to clutter the narrow stairways with rubbish, saying: "Let us not all die together."

A fire at a block of such units in Mongkok in November last year killed nine.

Ms Sze tells of the sense of hopelessness that pervades the buildings. Some residents, when asked if they wish to move to public housing, simply shrug.

One 71-year-old woman was finally persuaded to apply for a rental flat. She waited for a few years for it - and within a year of moving in, she died.

Says Ms Sze: "We shouldn't have to wait for her to say yes, and then make her wait. She should have been entitled to a decent, clean, basic home from the beginning." Hong Kong is the city with Asia's highest income gap, where 20 per cent of the population live below the poverty line.

At the same time, even as they struggle to stay afloat, housing prices have gone through the roof.

The irony is that on a per square foot basis, coffin dwellers are paying more than what some tenants in the posh Mid-Levels District pay. A survey by Soco found that a third of these households pay rents of up to 75 per cent of their incomes.

Experts say what is crucial is to boost the supply of public housing.

Currently, there are 728,600 public rental flats in Hong Kong, covering about 30 per cent of the population. The government aims to build 15,000 units a year, but there are over 190,000 households in the queue - typically a three-year wait or more.

Meanwhile, those in the sandwiched class such as Mr Yuen are stuck, unable to qualify for rental flats and unable to afford private homes. The Housing Ownership Scheme, where the government sells flats at about 70 per cent of market value to households earning below HK$30,000 a month, was scrapped in 2003 when property prices plummeted.

Chief Executive Leung Chun Ying has pledged to revive the scheme, amid talk over whether Hong Kong might follow Singapore, which provides public housing to 82 per cent of the population.

Developers are up in arms over this. Mr Donald Choi of the Nan Fung Group, for instance, believes there should be more rental flats to satisfy "housing needs", as opposed to public flats for sale.

"If Hong Kong, as a society, says yes, we should increase help to the weak, by all means. But we should separate housing needs from ownership needs - ownership needs are not a basic need."

These debates do not occupy people like Mr Ng, or his neighbour, who wanted to be known only as Mr Tse. Mr Tse, 55, who does "everything, including selling porn discs", points to a picture he put up on the wall of his coffin home.

It has one Chinese character - "yuan", or "fate" - which is covered by his blue-inked scribbles.

They say: "Be contented and you will be happy."

Tricks of the trade
THE power of Hong Kong property interests often results in information asymmetry at the expense of buyers.

How much space is the buyer really paying for?

The size advertised may not be the size the buyer is getting. The terms "gross area" or "saleable area" takes into account common areas such as lift lobbies, swimming pools and parking spaces. Ask instead for the term "useable area" which reflects the true size of the unit. This can range from 50 to 80 per cent of the area advertised.

A law was just passed to make it compulsory for developers to list both figures on their price lists during the primary home sales. It comes into effect next year. But real estate interests have blocked the same law for the secondary market.

One of the worst culprits is Yuppie Tel in Central. Flats in the 23-storey building on Shelley Street are just 145 sq ft - 44 per cent of the claimed 328 sq ft. With this reputation, the building has changed its name - twice.

Which floor is the buyer really on?

So the buyer shelled out a pretty penny for the auspicious-sounding 88th floor. It might be on the 46th floor instead. That was the case when powerful developer Henderson Land used only "lucky" numbers for the floors of its luxury building at the Mid-Levels so it could demand higher prices.

Another unlucky homeowner realised that his new flat at Oceanaire, a Cheung Kong project in Ma On Shan, is at the ground level next to the road. It was advertised in the sales brochures as being "on the podium floor below the fifth floor".