(Repeats to more subscribers)
* Brisk holiday sales of new flats stoke talk of fresh
* Property index at record high despite government pledge to
rein in prices
* As prices surge, sub-divided flats and industrial
By James Pomfret
HONG KONG, Feb 21 Just three months after Hong
Kong rolled out a tough new round of property cooling measures,
home prices have again climbed to record highs with demand
unusually strong for new flats over the normally quiet Lunar New
Year holiday break.
Hong Kong officials have stressed repeatedly that reining in
the city's property market, now one of the world's most
expensive, is a policy priority to restore affordability and to
mitigate a major threat to the economy of the affluent Asian
After five previous rounds of efforts to curb prices since
October 2009, including a 15 percent property tax on foreign
buyers, mortgage restrictions and quick resale taxes, the
home-price juggernaut rolls on and the challenge remains
"The overheating property market remains the biggest risk
factor to the stability of the Hong Kong economy," said Norman
Chan, head of the Hong Kong Monetary Authority, the city's de
facto central bank, who also said household debt was now at 59
percent, close to a record high of 60 percent in 2002.
Property prices per square foot now exceed HK$10,000
($1,300) even in drab, unglamorous districts such as Taikoo
Shing on Hong Kong Island, where thousands of 700 square-foot
units sell for more than $1 million apiece, more than a large
cottage in Provence, France, a 2,700 square-foot bungalow in
Hawaii, or a 1,300 square-foot flat on Manhattan's Upper West
With affordability reduced in a city with a monthly median
household income of about HK$20,000 and one of the widest wealth
gaps in Asia, anxiety has grown among its 7 million residents.
That anxiety however, didn't stop buyers flocking to newly
built units at Sun Hung Kai Properties' Residence 88
in a far-flung district close to the border with China, snapping
up 150 of the 352 units over three days at an average price of
some HK$8,000 per square foot.
"Sun Hung Kai was testing the market," said property
research analyst Wong Leung-sing with Centaline Property.
"People still want to buy flats. The desire is strong. They
don't think the market will fall."
The upcoming annual budget presentation by Hong Kong's
financial secretary could however, see a fresh round of market
curbs that would likely face opposition from Hong Kong's
powerful big five developers.
Together these giants - Cheung Kong (Holdings) Ltd
, Sun Hung Kai Properties Ltd, Henderson Land
Development Co Ltd, New World Development Co Ltd
and Sino Land Co Ltd - control around 90
percent of new property sales.
Hong Kong's embattled leader, Chief Executive Leung
Chun-ying, has pledged to raise the land supply for housing in
the medium to long term that should provide 175,000 public units
in the coming decade and boost private sector units. Demand
however, continues to outstrip short-term supply.
The Centa-City Leading Index, a widely used indicator of the
city's residential price trends, is now at a record 121.7, 5
percent higher than the same period in mid-January.
A sub-index of Hong Kong property stocks that
includes bellwethers Cheung Kong and Sun Hung Kai, has gained 9
percent since the last cooling measures announced on Oct. 26,
beating an 8 percent rise in the benchmark Hang Seng Index.
With substantial land banks and lack of competition, these
developers have huge leverage over a government that is keen to
encourage a swifter rollout of new flats and which could offer
incentives to convert and rezone land for residential use.
Henderson's billionaire owner, Lee Shau-kee, who expects a 5
to 10 percent price rise this year, recently called on the
government to waive expensive land premiums for agricultural
land to allow the construction of HK$1 million flats.
Hong Kong's leader recently hinted, however, that he may be
more inclined to take on the property tycoons whose wealth
surged last year as they saw their rankings rise on the Forbes
global billionaires list.
"In recent years, our urban development has taken a
disturbing turn. All too often, there are wrangles over land use
and infrastructure projects, leading to sluggish land
development and housing shortages," Hong Kong's Leung said
during his policy address in January. "In cases of market
failure, the government must take appropriate action to address
the problem," he said.
"MASSES CAN'T AFFORD IT"
Although property prices remain stubbornly high, new
mortgage applications fell 30 percent in December from November,
leading once-bullish analysts like Nomura's Paul Louie to turn
"Our property market and economy have just become very
imbalanced and everything is just catered towards the top 1
percent...the masses really can't afford it," said Louie. "We
expect property prices to stall, with only a mid-single digit
rise over the next two years."
With more than 200,000 people currently on waiting lists for
subsidised public housing, droves have downsized or moved into
factory buildings, sub-divided "slaughtered" flats that can
accommodate multiple families, or moved into "cage homes",
wire-mesh hutches stacked on top of each other in crowded rooms.
For the likes of Wong Chi-ho, the solution to the housing
problem lay in skirting the law. He moved into a cheap factory
space despite the risk of eviction by officials who ban such
usage on fire-safety grounds.
"What it says is that Hong Kong property is so ridiculously
overpriced and overexpensive, that it's pushing people of modest
means to do illegal things like this," said Wong, who has seen
half his building fill up with similar tenants.
Flats, meanwhile, have been growing smaller as developers
try to preserve margins and a semblance of affordability.
With more than half private dwellings now measuring less
than 538 square feet, a cottage self-storage industry has
mushroomed across Hong Kong, with industrial warehouses diced up
into labyrinthine storage cubicles to cater for people whose
lives have spilled beyond the walls of tiny homes.
"We've seen more and more people using storage basically as
everyday part of their lives," said Matt Chun, a director of SC
Storage, the city's biggest self-storage chain with 47 sites.
"It's a home away from home for some people...Personally, do
I wish that people have to live like that? No, I don't think
anybody deserves to live like (that). But it is what it is."
For many regular Hong Kongers, there are no easy answers.
"We don't even have enough money for food...but the
government has hardly done anything to fix the market," said
Michelle Wong, a single mother raising her baby daughter in a
damp, 80 square-foot sub-divided flat with a ruptured sewage
pipe that she rents for HK$3,000 per month.
Unable to afford anything else, she's been waiting three
years for a public housing unit.
"It's a very poor life that I lead."
($1 = 7.7543 Hong Kong dollars)
(Reporting by James Pomfret; Editing by Matt Driskill)