1) Free trade agreement another boost for Hong Kong’s role in One Belt One Road (OBOR)
Hong Kong and the Association of Southeast Asian Nations (ASEAN) have announced the conclusion of the negotiations on a Free Trade Agreement (FTA) and a related Investment Agreement over the weekend. The FTA negotiations between Hong Kong and ASEAN commenced in July 2014 and were completed in July 2017. The agreements are comprehensive in scope and the commitments therein are of value, encompassing trade in goods, trade in services, investment, economic and technical cooperation and dispute settlement mechanisms. Hong Kong and ASEAN will sign the FTA and the Investment Agreement in November this year. (Source: China Daily
, 9 September 2017)
ASEAN has become the second largest trading partner of Hong Kong. The new agreements will further enhance Hong Kong’s “super-connector” role in the OBOR region, in which ASEAN countries are forming an integral part of the OBOR initiative. In addition, the new FTA will enhance Hong Kong’s gateway position for more outbound investments from the Greater Bay Area into ASEAN countries and vice versa. We expect that the new FTA will have a positive effect on Hong Kong’s office market, with more companies from ASEAN countries establishing a presence in Hong Kong while expanding their businesses in China.
2) ‘Starter Homes’ scheme plans to help young families to purchase flats
A no-frills government-subsidised property scheme for young, first-time home buyers in Hong Kong might offer prices lower than half the market rate, a member of the Housing Authority said last Thursday. The “Starter Homes” scheme was an election pledge by Chief Executive Carrie Lam Cheng Yuet-ngor to help young families unable to get on the city’s property ladder – those who cannot afford private housing, but who earn too much to qualify for renting public flats. The Chief Executive estimated that a couple with a monthly household income of HKD60,000 (USD7,679) would have to save 30% of their income for 12 years to afford the down payment of a
HKD6 million (USD767,877) flat in Hong Kong. She expected home prices to increase further as the supply shortage will remain unsolved in the short term. (Source: SCMP
, 7 September 2017)
The market is expecting the scheme to offer home prices 40% to 50% lower than the market rate. Limitations on the resale of these flats may also be introduced to distinguish them from Home Ownership Scheme flats. For instance, the flats can only be sold back to the government at original prices to prevent young owners from purchasing flats for speculation.
The scheme and several housing measures launched by the government are designed to assist first-time buyers to purchase homes for the purpose of owner occupation. More than 85% of households in Hong Kong will be eligible for the scheme if the monthly household income limit is set at HKD80,000 (USD10,238), which is expected by the market. However, the direct impact of these measures on the growth of home prices is minimal. More new supply remains the solution for slowing the price growth. Private residential completions reached 11,253 units in the first seven months of 2017, 29% higher than the same period last year. To ensure adequate long-term housing supply, Mrs Carrie Lam has formed a government task force on increasing land supply. It focuses on the feasibility of 12 proposed plans including the reclamation of reservoirs, the relocation of container terminals and the development of country parks. Given that it will take 18 months until the task force puts forward a solid proposal, the land supply shortage problem will continue to keep property prices high in Hong Kong.
3) Flexible lease terms and cost consciousness remain drivers of jewellery and watch sector
High-end Swiss watch retailer Titoni has vacated a prime street shop in Mong Kok. The luxury watch brand was leasing a street level shop spanning 1,600 sq ft (149 sq m) in Righteous Centre, located at 815 Nathan Road, Mong Kok. It will be replaced by the Indonesian lifestyle café brand J.CO Donuts & Coffee. The new tenant’s monthly rental of HKD270,000 (USD34,549) represents a 30% discount from Titoni’s previous monthly rent of HKD370,000 (USD47,345). The significant rental adjustment translates into a decrease from HKD231 per sq ft (USD29.6) to HKD169 per sq ft (USD21.6). Despite the retail market showing signs of stabilisation, numerous shops from the jewellery and watch sector have moved their operations out of prime street locations as retail spending is, when compared to peak times, still low. (Source: HKET
, 5 September, 2017)
Jewellery and watch sales are showing signs of recovery, growing 2.5% YOY in the first seven months of this year. With a rise of 12.5% YOY, July saw the strongest growth in sales value in more than four years. However, the performance of jewellery and watch sales is still weak compared to the same period in previous years. Despite the generally dominating cost consciousness, we see new leasing activities from mid-market brands in this subsector after some luxury brands closed their shops in high street locations. THOMAS SABO Hong Kong for instance, a premium jewellery and watch brand from Germany, has opened a flagship store with a new design concept at Ocean Terminal in Harbour City. Meanwhile, SevenFriday, a Swiss lifestyle watch retailer, is embracing short-term lease opportunities by launching a 560 sq ft (52 sq m) lounge-like pop-up shop at 51 Queens’ Road Central. It is the brand’s first stand-alone shop in the city. (Source: Census and Statistics Department, InsideRetail, 5 and 7 September 2017)