The following has been abstracted from an article that we
have contributed to the Hong Kong Economic Journal (a Chinese daily).
Recently, the author had attended a business luncheon
featuring the head of Asia research of a prominent financial and investment
corporation as the guest speaker. In the process, it was mentioned that the
real estate prices of Hong Kong were (are) still too high* and thus the
“competitiveness” of Hong Kong was (is) reduced. It is understood that many,
especially those from the expatriate community, hold similar views and it is not
without reasons (e.g. grade A office rents are among some of the highest in the
region). Nonetheless, the author begs to differ from the
above perspective and speculates that the following may be some of the reasons
why many expatriates still hold the “prices too high” views: A)
Multi-national corporations tend to rent / buy the best properties in the
market: this applies to both their choices of offices (at least for the
regional / Hong Kong corporate HQ office) and residences e.g. the Peak, Central
Mid Levels, Repulse Bay and so on. These properties on the whole do command a
rent or price that is generally higher than most of the counterpart properties
in the modern cities of Europe or North America. It therefore comes as no
surprise that they “feel” Hong Kong prices are too high. B) If expressed in price per square foot (or
meter) of floor area, Hong Kong prices indeed would “feel” high =
for instance, the average price of a typical private home (i.e. a 600
‘gross’ square foot apartment unit. Net unit area would be even smaller, say
around 450-500 ft2) in Hong Kong now commands around US$300,000. This is
certainly not a price to be smeared at but it is not exceedingly high compared
to the average home prices (admittedly, the “counterpart” average
home of most other cities would offer much more space and so on) some of the
major cities as well. So why the fuss you may ask? Perhaps the answer is that
when expressed in $/square foot (ft2) this works out to around US$500/ft2. For
this rate, one can acquire the best condos (note: on a price per ft2 wise) in
the major metropolitans. It certainly “feels” high. C) Most if not all expatriates could have
rented / purchased a larger property ‘back home’
with the budget being given to them to rent / buy a Hong Kong residence = for
instance, to most people in Hong Kong, renting a 3,000 square foot apartment in
the Peak area means spending at least some US$10,000+ per month, while purchase
price could be US$3M and up. Nonetheless, these amounts would have been enough
to rent / buy a “mansion” (or at least a very large house) in most cities.
The expatriates, particularly the newly arrived, would “feel” that prices
are too high. Putting it another way, the “counterpart” home elsewhere of
any grade of the Hong Kong residences typically offers larger space, better
comfort, and so on. To retain “similar” home features, the housing budget
would have to be increased significantly. As a rough illustration, the counterpart
of the Hong Kong 600ft2 apartment would be a 2,000ft2 house in North America. From a simple ‘affordability’ angle, a Hong Kong home
is now quite affordable. Again taking the 600ft2 US$300,000 home as an example, the family is
likely to earn very roughly US$4,000-5,000 per month = $48,000-60,000 annually
(before tax = income tax rate is around 15% max). That means a ratio, home price
divided by annual family income, of around 6. Naturally, this reflects to a
certain extent the lack of confidence and fear of income risk especially
among the middle class, yet the ratio indicates a much higher affordability.
Whether the 600ft2 (generally accommodates 2 bedrooms, plus washroom, kitchen,
dining area, sitting area etc) is ‘acceptable’ is another matter. *Note = this is looking from an affordability angle and NOT from an investment
angle. There is a concern in the long run whether the middle class private
residential sectors can maintain the existing price levels in real terms. "Notes: The article and/or content contained herein are
for general reference only and are not meant to substitute for proper
professional advice and/or due diligence. The author(s) and Zeppelin, including
its staff, associates, consultants, executives and the like do not accept any
responsibility or liability for losses, damages, claims and the like arising out
of the use or reference to the content contained herein. |
