Property Markets
HONG KONG
Hong Kong Property Market
Influence of Government – Leasehold land tenure system Principal generator of land supply
– Disposals – application list system – Lease modifications – Agencies – URA, MTRC, KCRC
PPS
Dependence on land revenues Major owner and until recently provider of social housing
A More Predictable Property Market?
Shift from trading to investment mentality More comprehensive long term approach to planning and land use Land supply driven policy Non intervention by Administration Re-think of housing policy Market largely driven by fundamentals
PPS
Market Overview - Residential
Ultimate barometer of Hong Kong’s well being In recovery mode but is it sustainable? Three markets within a market plus public housing sector Potential issues relating to supply in 20062007 Vulnerability to increases in interest rates Speculation at top end
PPS
Hong Kong : Home Ownership – private sector
Traditionally builds 25,000 – 35,000 units per annum Land obtained through purchase / lease modification In lead up to 1997 prices driven by speculative attitude and opportunity to make quick profit, not aspiration to own one’s home Post 1997 market collapse – values fell by some 65%. Most families in negative equity Correction lasted for best part of 6 years, now seeing market revival driven by fundamentals
PPS
Total Stock of Private Residential Units by Class in Hong Kong
Class D (53,646 units)
5% 11%
Class C (110,624 units)
Class E (24,112 units)
2% 34%
Class A (361,243)units)
Class B (501,137 units)
48%
Classification of Residential Units by Class :
Class A - saleable area less than 40m² Class B - saleable area of 40m² to 69.9m² Class C - saleable area of 70m² to 99.9m² Class D - saleable area of 100m² to 159.9m² Class E - saleable area of 160m² and above
PPS
Sources: Rating and Valuation Department
Hong Kong Residential Market (Overall) Supply,
Supply and Take-Up (units)
Take-up & Vacancy
Vacancy (%)
40,000
8.0 7.0 6.0
35,000
30,000
5.0 4.0 3.0 2.0
25,000
20,000
15,000
1.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004F 2005F 2006F
10,000
Supply Take-up Vacancy Rate
0.0
29,400 33,380 26,222 27,673 34,173 22,621 19,875 18,202 22,278 35,322 25,790 26,262 29,428 34,329 22,288 21,281 18,736 30,675 23,348 22,683 27,316 23,245 24,715 20,476 15,090 13,044 19,560 29,180 19,318 20,000 23,000 24,000 23,000 26,000 3.5 4.2 4.2 3.9 4.7 4.1 3.7 3.8 4.5 5.9 5.4 5.7 6.3 7.0 6.6 6.2 5.4
PPS
Sources: Rating and Valuation Department, HKSAR & Insignia Brooke
Hong Kong Residential Market
Price Index (1999=100)
Annual Price Indices (1999 = 100)
180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30
Indices (Overall) 1991 61.1 1992 85.2 1993 93.0 1994 114.9 1995 107.3 1996 116.9 1997 163.1 1998 117.1 1999 100.0 2000 89.6 2001 78.7 2002 71.5 2003 70.8 2004F 74.3 2005F 81.7 2006F 89.9
PPS
Sources: Rating and Valuation Department, HKSAR & Insignia Brooke
Hong Kong Residential Market
Rental Index (1999=100)
Annual Rental Indices (1999 = 100)
180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30
1991 82.4 1992 90.4 1993 97.4 1994 118.1 1995 120.7 1996 119.0 1997 134.5 1998 112.6 1999 100.0 2000 98.1 2001 95.4 2002 85.4 2003 81.1 2004F 86.8 2005F 95.5 2006F 105
PPS
Indices (Overall)
Sources: Rating and Valuation Department, HKSAR & Insignia Brooke
The Leighton Hill, Happy Valley
Housing the Community
The role of Government
– Stabilising society – Facilitation – Financial support – Social need
The role of the private sector
– Responding to market demand – Assisting Government with physical provision
PPS
Hong Kong : Home Ownership – Public Sector
HA provided 649,000 pr flats for 2,019,000 persons representing 30% of Hong Kong’s population Sold 405,500 flats through various subsidised home ownership schemes Provided over 100,000 loans for flat purchasers Built 2.26M sq m of commercial/retail space and 100,000 car parking spaces
PPS
Hong Kong – Government Housing in 1970
Hong Kong : Wind of Change (I)
HA supply intended to complement / augment private sector but at times of high unaffordable prices HA became prime producer and competitor of private sector Up to 100,000 units per annum at peak. Sold at discount from market value, quality good Collapse of property market. Private sector now affordable. Rebellion by private sector producers
PPS
Hong Kong : Wind of Change (II)
Government now exited subsidised purchase provision and focus is to facilitate cost effective provision of quality public rental housing Also move away from physical provision to financial assistance and entrusting private sector developers with building units which are then allocated to nominated Government buyers / tenants. Voucher system rather than physical provision under serious consideration
PPS
Modern Public Housing
Market Overview - Office
Relatively weak demand continues Wide range of choice Move back to Central Few new entrants to market Grey space disappeared but essentially a case of musical offices Main rental movement restricted to Grade A and Central
PPS
Supply, Demand & Vacancy in Prime Areas
New Supply & Take-up (net sq ft)
4 ,0 0 0 ,0 0 0
Vacancy Rate (%)
1 6
3 ,0 0 0 ,0 0 0
1 2
2 ,0 0 0 ,0 0 0
8
1 ,0 0 0 ,0 0 0
4
0
0
-1,000,000
Supply
Take-up
Vacancy Rate
-4
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
* As of September 04
Source : CB Richard Ellis Limited
2004*
Hong Kong
Market Overview - Retail
Strongest market sector, fuelled by Mainland visitors Traditional areas of Causeway Bay & Tsim Sha Tsui in demand Re-emergence of strata title investors Re-configuration of 1st and 2nd floor podium space to retail use HA REIT initiative
PPS
The Arcade, Cyberport
New Retail Property REIT
Link REIT to be launched in Hong Kong in mid-December First Hong Kong REIT and one of biggest launches this year 151 Housing Authority shopping centres and 79,000 carparks valued at US$4 billion
PPS
Market Overview – Other Sectors
Interest in 2/3 star hotels, fuelled by Mainland tour groups Hotel occupancies up, but room rates still not back to pre SARS level Conversion of industrial sites to hotel and guest house use. General business zoning failed to rekindle interest in industrial stock Loft experiment also unsuccessful
PPS
Market Prices and Yields
Residential 1.Mass Market 2.Luxury Yield Office (Grade A) Yield Retail (Zone A) Yield
US$6,500 per sq.m. US$13,000 per sq.m. 3-4% net US$9,000 per sq.m. 5% net US$50,000 per sq. 6% net
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Market prices and yields (continued)
Industrial Yield Hotel (3/4 star) Yield US$1,500 per sq.m. 8-9% net US$500,000 per room 7%
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The Market Players
Those for whom real estate is a significant part of their business
– Property Developers – Property Investment companies and funds – Banks – funders of and lenders to real estate sector – Service providers – Contractors – Government
PPS
Health Warnings (I)
Continued Government involvement Lack of meaningful institutional investor pool Trading mentality still prevails Lack of sophisticated asset management expertise Failure to resolve long term policy/strategy issues
– – – – Harbour Heritage Sustainability Urban Renewal
PPS
Health Warnings (II)
Absence of successful P/P model Potential volatility of supply Lack of joined up thinking Need for strategic planning authority No account yet taken of intangible returns
PPS
S.W. Kowloon – Aerial View
S.E. Kowloon – The Existing Platform
MTRC Mission
To develop and manage a world class railway together with property and other related businesses, to enhance the quality of life in Hong Kong. We are a company that builds and operates railways and designs and builds communities.
PPS
Facts & Figures
Total route length : 88 km Total no. of stations : 49 Daily hours of operation : 19 hours
Total no. of passengers in 2003: 842M
Average daily patronage : 2.3M (with a record high of 3.1M on Christmas Eve 2002)
MTRC Portfolio by Railway Lines
Urban Lines
234,898 sq m
Development Management 126,490 sq m 130,367 sq m 28,729 flats
299,363 sq m
31,366 flats
Total GFA: 2.6 million sq. m.
Airport Railway
611,968 sq m Development Management 254,190 sq m 46,170 sq m 13,345 flats Legend Office Retail Residential 103,130 sq m 132,014 sq m 28,800 flats 307,880 sq m 28,896 flats 294,072 sq m
Total GFA: 3.5 million sq. m.
Tseung Kwan O Line
Development
Total GFA: 2.3 million sq. m.
Hotel/Service Apt
Kowloon Airport Station - MTRC
Brown v/and Green Debate
Challenge of multiple ownership in urban areas Attraction of green field approach Ever growing demand for city living Rural to urban migration Absence of, and a reluctance to use, compulsory mechanisms Growing attention to quality of life capital Reducing pressure on existing infrastructure
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Urban Regeneration Area
Ma On Shan, Shatin
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Allocation of Development Gains
Differentiation between capital gain attributable to market forces and a direct increase in land value attributable to an administrative decision No taxation of capital gain Increases in value arising from planning decision or lease modification are shared, but reasonable allowance made for developer’s profit and for the before value of the asset Payable at time of decision in full. Focuses the mind, but subsequent increases in value accrue to the developer only
PPS
Tuen Man New Town South
Historical Background – New Towns
Shortage of suitable building land in urban areas. Challenge of multiple ownership Areas of flat farming land in the New Territories Influx of 2 million refugees from Mainland China October 1972, Governor approved major housing programme to provide homes for 1.8 million people by mid-1980’s
PPS
Historical Background – New Towns (continued)
More than half of these were planned to be in New Towns Adoption of long term comprehensive land use-transport-environmental framework First generation New Towns – Concept of balanced development and self containment
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Lessons Learnt – New Towns
Importance of early provision of infrastructure, schools, etc Need for public housing / Government office decentralisation to act as catalyst and anchor Private sector will follow but will not lead
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Lessons Learnt – New Towns
(continued) Policy of self containment difficult to achieve in practice Attraction/pull of bright lights and higher salaries in urban areas High densities defeated green and other environmental priorities
PPS
Johnston Road Shophouses (1)
History of Urban Renewal Authority (URA)
Established May 2001 to set new direction for urban renewal in Hong Kong Previous LDC constrained by requirement that each scheme should satisfy commercial viability criteria Mission is to revitalise run down areas through redevelopment, revitalisation and rehabilitation
PPS
History of URA – Cont’d
At same time preserve culture and heritage and buildings with historical value Endowed with compulsory purchase powers and ability to offer cash compensation and/or rehousing arrangements to affected parties Tasked to implement 225 projects in 20 years, and 43 in first five years
PPS
Lessons Learnt – Urban Renewal
Social content renders most schemes commercially non-viable Need for acceptance that social element is a cost to the community at large Redevelopment should be a matter of last resort and focus should be on regeneration and revitalisation Social impact and the people factor are key issues to be addressed and reality is that soft is often more important than hard
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Johnston Road Shophouses after preservation
PPS
Thank You!
Professional Property Services Limited