Steve Lam, Senior Director, Capital Markets & Investment Services, and Jason Kwong, our leading housing and land matters expert, discuss what drives the buyers and sellers of premier luxury residences, and the locations that are seeing increasing demand for this kind of property.
Forty-four luxury houses, worth a total of approximately HK$10.8 billion, were sold on The Peak and in the Southern District in 2021, according to EPRC records. This year, in the same neighbourhoods, only 10 sales have been registered up to August - a fall of 22% year-on-year - worth HK$2.95 billion - a 27.3% drop compared to the previous 12 months.
"Landlord and buyer attitudes have shifted."
Senior Director | Capital Markets & Investment Services
Steve Lam, Senior Director, Capital Markets & Investment Services at Colliers, says that, if you put the pandemic to one side, a shift in landlord and buyer attitudes explains these significant contractions in the number and value of luxury properties sold: “On the landlord front, secondary market homeowners in traditional upscale districts, who bought their properties many years ago, tend not to put them up for sale as they typically have a strong reason to hold on to them. On the buyer side, pent-up domestic spending power is yet to be unleashed, and purchasers from over the border remain locked out.”
Rising mortgage rates have seen most prospective buyers adopt a wait-and-see approach. “The insufficient number of transactions in the secondary market does not provide a useful indicator of the market, so we only have deals in the primary market to refer to,” added Lam.
The latest big-ticket transactions include House No 7 at “No 15 Shouson” on Shouson Hill Road West for HK$870.24 million. The property, with a saleable area of 8,032 sq. ft. and a per-sq. ft. price of HK$108,347, features a private swimming pool, parking space, a garden and a rooftop. At the other end of Southern District in Tai Tam, House No 5 at “45 Tai Tam Road”, with a saleable area of 4,784 sq. ft., a private pool, parking space, a garden and a rooftop, was sold at the beginning of 2022 for HK$453.8 million, a per-sq. ft. price of HK$94,858.
“Traditionally, Deep Water Bay and Repulse Bay have been prominent areas of interest, but they have limited supply. The introduction of new supply at Shouson Hill and Tai Tam could tempt buyers with new, alternative properties. These properties went for their market price, showing demand is still there and that quality housing offers great lived-in homes for cash-rich buyers,” explained Lam.
"The limited supply in traditional upmarket areas have meant buyers have turned to other districts in the search for prime properties."
Senior Director | Capital Markets & Investment Services
A fresh mindset
The limited supply in traditional upmarket areas have meant buyers have turned to other districts in the search for prime properties. Mainland investors have been the chief buyers of luxury homes in Hong Kong for some time, and for them, a traditionally exclusive address is not a must-have. They are more open to acquiring high-quality assets in locations they like.
Developers are also extending more payment options, such as enabling transactions through company share transfers. This helps speed up purchasing decisions due to the greater flexibility for tax optimisation.
The Rating and Valuation Department’s Hong Kong Property Review 2022 includes the city’s stock of private houses and where they are. Excluding village-type dwellings, Hong Kong only has 19,508 houses, of which the 16,192 in the New Territories account for 83% of the total. Hong Kong Island has 2,663 (14%), and Kowloon only 653 (3%). The total of 19,508 comprises 1.58% of the total number of private residential units (1,237,995). As a result, buyers are shifting their focus from traditional prestigious addresses to the New Territories, in particular New Territories West.
Units at Villa La Plage, a seafront development located at Castle Peak Road (Castle Peak Bay), also sold encouragingly. Buyers have snapped up 16 houses in total since its launch at the end of 2020. House 8, with a saleable area of 5,211 sq. ft., cost HK$214.6 million, making it the most expensive in the development per saleable sq. ft. at HK$41,182.
The big picture
Jason Kwong, Director, Valuation & Advisory Services at Colliers, explained why buyers may be looking north: “Benefiting from the proposed Northern Metropolis and Northern Link, the North District is the focal point of the market. It is not surprising to see experienced investors drawing up asset allocation strategies to stay ahead of the game.” In 2021, the Hong Kong government unveiled its Northern Metropolis Development Strategy, characterised by an integrated development pattern linking Hong Kong and Shenzhen. The Northern Link is a new proposed line of Hong Kong’s Mass Transit Railway (MTR) system which would connect the Tuen Ma line and the Lok Ma Chau Spur Line of the East Rail line, and the border checkpoint to mainland China for passengers to and from the western New Territories.
The Northern Metropolis mainly covers two administrative areas, Yuen Long District and North District respectively. The former borders the Western Development Corridor and the Northern Economic Belt, while the latter will be a focus for developing and accelerating economic activities in two new areas, Kwu Tung North and Fanling North, as extensions of Fanling and Sheung Shui New Towns.
The creation of Hong Kong’s Silicon Valley – San Tin Technopole – will facilitate the exchange of talent with, and the city’s integration into, the Guangdong-Hong Kong-Macao Greater Bay Area. The flow of the 86 million inhabitants of the region’s 11 cities is expected to be more effective as a result, while the demand for housing should also increase tremendously.
"Although the New Territories has a vast amount of land, the choices are limited for the development of low-density, high-end properties."
Director, Valuation & Advisory Services | Asia at Colliers
A new era for exclusive neighbourhoods
“Although the New Territories has a vast amount of land and the government is speeding up the development of brownfield sites and agricultural land to boost land supply, the choices are limited for the development of low-density, high-end properties,” said Kwong. The government designated 36.6 hectares for residential development in Kwu Tung North, one of the two major development areas, but constrained the public-private flat ratio to 70:30 and the strategic direction for increasing it.
Most of the residential land will be used for mid- to high-density development with a newly proposed plot ratio of 4.2 to 7.8 times, making it hard for residential development exclusively. It also designated 25.8 hectares for residential development in the Fanling North New Development Area, with a proposed ratio of 0.29 to 6.5 times. However, it is anticipated that land designated as “Residential (Group C)” zone, which allows for house building, will be very limited.
“There is a lack of land supply for the development of low-density houses, but demand is expected to rise significantly. The recent continuous acquisition of land by developers reflects market dynamics,” said Kwong. Seven land-premium transactions for residential developments worth a total of HK$3.3 billion have taken place in Yuen Long. Most of these are for low- to mid-density housing. For example, Sun Hung Kai Properties (00016) paid a premium of HK$268 million for farmland in Ngau Tam Mei, Yuen Long, on which it is planning to build 71 houses.
“Traditional luxury homes will show resilience as they are rare gems in the market due to the constraints on land development. Prestigious residential areas are spreading into the New Territories driven by the government’s policies,” Lam said.
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