Considered Asia’s foremost financial hub, Hong Kong is a territory that’s legally under Chinese rule but retains considerable autonomy to run its domestic affairs. It has its own immigration policy, taxation laws, police force and even its own currency, and represents itself in regional and global trade agreements, such as the World Trade Organisation and the Asia-Pacific Economic Cooperation.
Granted special-region status by Beijing, Hong Kong has successfully utilised both its proximity to and autonomy from mainland China to its advantage.
Mainland firms are listed in the Hong Kong Stock Exchange to take advantage of its highly internationalised and modernised financial industry. Chinese goods routinely pass through Hong Kong’s very efficient sea and airport. At the same time, minimal intervention from Beijing means Hong Kong has a free hand to run its own affairs – one of the conditions promised by China before Hong Kong was handed over in 1997.
With an economy characterised by minimal government intervention and low corporate and personal tax, Hong Kong’s GDP grew 180 times from 1961 to 1997, and made it one of Asia’s developed economies. As a de facto country, Hong Kong ranks highly in many indices of economic performance, one of which is being cited as the world’s freest economy by the Heritage Foundation and the Wall Street Journal for 17 consecutive years since 1995.
It has also weathered the global downturn quite well, thanks to its core strengths, such as a sound banking system, a strong legal system, ample foreign-exchange reserves, rigorous anti-corruption measures, and close ties with mainland China.
The city has also consistently upheld its policy of and supporting its residents’ entrepreneurial activities by removing unnecessary barriers for private enterprises. In fact, it takes just three days to register and start a business in the territory.
As an international financial powerhouse, it is also the favoured regional headquarters of countless international firms, adding to it a cosmopolitan atmosphere only a few cities on earth can rival. It hosts 58 consulates-general, 64 consulates and five officially recognised bodies, more than any city on earth, including New York, the home of the United Nations.
Very high government spending has resulted in a city with impeccable public infrastructure. Its international airport is one of the world’s busiest; its port is second only to New York’s and Rotterdam’s in terms of container throughput; and its public transport one of the world’s most efficient.
So in a way living in Hong Kong can be considered a blessing. Residents get to enjoy the territory’s impeccable infrastructure, business-friendly environment and a very high standard of living. But at the same time, its real estate is one of the world’s least affordable.
To give you an idea, a luxury house in Hong Kong Island’s affluent Deep Water Bay area was sold for a staggering £8,400 per square foot in 2011 (US$13,150 – based on 2013 exchange rates), according to a report by Savills. Then in mid-2012, a 580-square-metre apartment occupying an entire floor in the Frank Gehry-designed Opus Hong Kong was sold for HK$470 million (US$60.6 million). These are prime properties alright, but they give buyers an idea of what to expect when buying in the territory.
Indeed, Hong Kong is a place where land is at a premium, and its more than million residents are cramped in an ever-rising vertical city. But despite this limitation, the city continues to attract property hunters willing to part with their cash for potentially big returns, especially now that demand continues to outstrip supply.
Hong Kong is a favourite destination of well-heeled property buyers, especially those from mainland China. Restrictions for second-home purchases implemented by Beijing prompted many mainlanders to go to Hong Kong, which caused a surge in prices over the last few years. Knight Frank’s Wealth Report in fact indicated that 25% of prime market purchases in Hong were by mainland Chinese buyers, compounding the staggering 60% growth seen since the beginning of 2009, and stoking discontent among middle-class Hongkongers who feel they’re being priced out of the city’s housing market.
This prompted the Hong Kong government, led by its newly appointed chief executive CY Leung, to implement restrictions: first mortgage policy was tightened in September, followed by the implementation of the Buyer’s Stamp Duty and the extension of Special Stamp Duty in October (to curb speculation) for properties sold within two years of purchase. Foreigners also no longer qualify for permanent residency by simply buying a home.
‘These measures hurt the residential buying sentiment, particularly in the luxury segment,’ said Ricky Poon, Executive Director of Residential Sales at Colliers. According to a report by Knight Frank, residential sales volume plunged 53.3% in December 2012 from a month earlier, the lowest for the entire year.
But after adopting a wait-and-see attitude after the cooling policies, potential home buyers appeared to digest the impact of these measures and returned to the market.
Developers also regained momentum and launched new projects. In December, High Place in Kowloon City and The Wings II in Tsueng Kwan O were launched by Henderson Land and Sun Hung Kai Properties, respectively, with promotional packages to boost demand. The residential sales market was further heated by the launch of Greenview Villa in Tsing Yi, a subsidised-housing project from by the Hong Kong Housing Society.
In his first policy address, Chief Executive CY Leung announced a series of measures to deal with Hong Kong’s housing woes. It involves increasing residential land supply by changing land use.
Although this has set a right direction for long-term housing policy, supply is still expected to lag behind demand in the near future. Home prices are set to remain stable with upward or downward movements within 5% this year. But according to Thomas Lam, Director and Head of Research, Greater China at Knight Frank, the new policies involve time-consuming collaborations among a number of government departments. This means new land supply will not become available until 2015–2016 the earliest. Therefore, in the short term, demand will continue to outstrip supply and market expectation for home price development is unlikely to change.
A buyer’s guide
Generally foreigners – except those from Afghanistan, Albania, Cuba, North Korea and mainland China (unless they are permanent residents in another country) – can buy properties in Hong Kong and rent out without restriction. And they have two options: either as an individual (including jointly with your spouse) or through a corporation. For large real estate developments, it’s best to own property through a Hong Kong corporation.
It is also fairly easy to get a mortgage in Hong Kong if you have an income. Local financing is widely available for foreign residents.
HSBC lists these useful steps for foreigners looking into applying for a mortgage loan in Hong Kong:
- Calculate how big a mortgage you can afford before looking for a property. Approach a financial institution for a preliminary valuation of the desired property to get an idea of how much can be borrowed.
- Agree on a purchase price and transaction completion date, then pay an initial deposit and sign a provisional sale and purchase agreement. Apply for a mortgage. Appoint a solicitor for a land search and arrangement of legal documents.
- Sign the formal sale and purchase agreement and make the down payment (usually around 10% of the purchase price) to the vendor. Sign the other legal documents and arrange to pay the outstanding balance (partially or fully paid by your mortgage) to the vendor. For under construction property, additional legal documents will have to be drawn up on receipt of the occupation permit. On top of the property price, the buyer might also have to the following: (a) solicitor fee, including sale and purchase agreement, assignment deed and mortgage deed; (b) government fee including stamp duty; and (c) property agent fee.
Where to buy
Hong Kong itself is just one of the islands that make up the entire special administrative region. It is also what the Chinese ceded to the British after their defeat in the First Opium War, and, for many decades, the very centre of British rule. Right across the harbour to the north is Kowloon, a tiny peninsula jutting out from the Eurasian mainland. Then there’s New Territories, comprised of a large chunk of land that shares border with Shenzhen and over 200 offshore islands, including Lantau, Tsing Yi, Cheng Chau, Peng Chau and Lamma, among others. As Hong Kong’s de facto financial and political centre, the Western and Central District is where the city’s skyline is most impressive. It also has some of the city’s priciest real estate, from upscale retail areas to posh condos built along the steep slopes of Mid-Levels. Then there’s the crowded Eastern District populated mostly by residential towers built along the coast. Ten MTR stations serve this area, making it highly accessible from Central and Kowloon. For the affluent buyers, there’s the Island’s quiet Southern District, where most of Hong Kong private luxury estates are found, such as those in Deep Water Bay and Repulse Bay. But over the last few years foreign buyers have avoided the traditional luxury districts, and opted for upcoming affluent neighbourhoods, such as West Kowloon, where a number of upscale residential projects were unveiled. This is also where the city’s tallest skyscraper is found – the 484-metre International Commerce Centre, which sits on top of Kowloon Station. Further afield is the new town of Tsuen Wan in the New Territories. Many of the private residential buildings are located around the MTR station, where also much of the area’s commercial activities take place. Other new residential areas in the New Territories include Yuen Long and Tuen Mun both served by several MTR stations.
1. As real estate is exorbitantly expensive in Hong Kong, buying off-plan makes a lot of sense. Several projects have been launched since the government implemented cooling measures in the last quarter of 2012. One of these projects is Sun Hung Kai Properties’ The Wings II project in Tseung Kwan O. Scheduled to be completed in July 2014, the entire project will have 784 residential units in four towers. The first 50 units launched cost an average of US$1,378 (HK$10,688) per square foot.
2. There’s also the Century Gateway project, a joint venture between MTR Corp. and Sun Hung Kai Properties. It is located in Tuen Mun, New Territories, and is scheduled for completion in August 2013. It has 1,080 residential units priced, on average, at US$1,449 (HK$11,238) per square foot.
Meanwhile, Henderson Land’s new project called High Place was launched late last year and will be completed in December 2014. Located along Carpenter Road in Kowloon City, the project has 76 units in one residential tower, with average price of US$1,804 (HK$13,993) per square foot.