Everything about Landscope Christie's International Real Estate and the Hong Kong luxury property market

Déjà Vu

“In the past few weeks, government officials in charge of land and housing policies have delivered a series of high-profile messages about rising housing supplies. Bowen Leung Po-wing, Secretary for Planning, Environment and Lands, said the Government would make available 260 hectares of land for private housing over the next five years – an increase of about 80 per cent on the 145 ha released over the past five years. Dominic Wong, Secretary for Housing, said there would be an increase in housing supply next year. ‘The supply of flats will increase steadily from 1998 onwards,’ he said.”

The above was from a news story in the South China Morning Post (SCMP), dated January 22, 1997. About six months later, on June 4, 1997, the paper published the following report:

“Three sites were sold, raising $11.6 billion for government coffers, but the first site under the hammer, a large luxury residential site in Stanley, took 15 minutes to elicit a bid and was on the verge of being withdrawn. Bidding on the 570,492 sq-ft Wong Ma Kok Road site was painfully slow, and the first bid came only after government auctioneer Dick Baram delivered the last warning that it was about to be withdrawn. Three bids later, the group had bought the site for $5.5 billion, between 16 per cent and 34 per cent below earlier market estimates. That bid came from a consortium led by Paliburg International Holdings, Regal Hotels International Holdings and China Overseas Land & Investment.”

The site was sold for an AV (accommodation value, which means the value of land per square foot of buildable floor space) of $12,854 per square foot, much lower than forecast range of $15,500 to $19,500 per square foot AV. It has since been developed into today’s Regalia Bay. Six years later, the completed houses on the site were selling at a tad over HK$8,000 per square foot and only recently has it climbed up to HK$18,500 per square foot after 14 years.

On July 16, 1997, the following report appeared in the SCMP:

“Confirmors already are facing an uncertain market, with property transactions having dropped by 70 per cent in some popular housing estates in the past month, according to property agents. This followed warnings in mid-June by Leung Chun-ying, the head of a special task force on housing, that the SAR Government intended to get tough with speculators More recently, Chief Executive Tung Chee-hwa said the Government planned to build 85,000 flats a year and make housing more affordable.”

In the second quarter of 1997, the property market, especially the luxury market, had transactions smashing previous record prices almost every week. However, sales volume dwindled, showing a strong price resistance at current level. This was followed by a six-year long unprecedented market decline, to the tone of 70 per cent value depreciation. The ensuing economic catastrophe was well told.

Now, flash forward 14 years to June, 2011. On June 10, the SCMP reported thus: “A luxury residential site on Borrett Road in Mid-Levels was sold at below record market price estimates yesterday, a sign that developers are becoming more cautious about the outlook for the red-hot property market... With a maximum gross floor area of 435,292 sq-ft, the Borrett Road site was sold to Cheung Kong (Holdings) for $11.65 billion in a slow auction. Analysts had expected the site would fetch between $12 billion and $15 billion.”

The resultant $26,763 per square foot AV is lower than the forecast range by three to 22 per cent.

On June 11, 2011, the SCMP reported that “the Hong Kong Monetary Authority announced a cut in mortgage loans for homes valued above $10 million to 50 per cent of the value of the property from 60 per cent, while for properties priced from $7 million to $10 million the amount able to be borrowed will be lowered to 60 per cent from 70 per cent… The authority also added tougher restrictions on non-resident borrowers by reducing at least 10 percentage points the maximum loan-to-value ratio.”

The report went on to say: “The government also announced the launch of eight sites for sale between July and September in an attempt to increase land supply. The sites are expected to offer about 6,000 flats – double the estimated 3,000 provided by the nine residential sites pt up for sale in the April to June quarter.”

So much for the similarities. Will history repeat itself?

All economic and social activities are the result of human behaviour, which epitomises human nature. Has human nature changed over the thousands of years of history? I am afraid not. I believe strongly that a correction is looming large.

By Koh Keng-shing