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

How High?

The recent subprime mortgage turmoil in the US and the subsequent credit squeeze in the leading economies have caused a series of turbulence in world stock markets. Coupled with a simultaneous decline of the US housing market and a very cautious outlook of the US economy, major stock markets can expect more rough rides ahead. In mainland China, the central government has stepped up its crackdown on the overheated economy and rampant property speculations by introducing successive increases of interest rate and anti-speculation measures. The property markets in Beijing. Shanghai and Shenzhen are feeling the crunch, with transaction volume having shrunk by 50% to 70%. Price drops are recorded across the board. The outlook is nothing short of gloomy.

Hong Kong has so far been immune from all these, except a 15% setback of the stock market index. The luxury property market seems unmoved by what’s happening in the financial markets, with prices making records almost daily. Most large apartments at The Peak, Southside and Midlevels Central are selling at over $20.000 per square foot, and houses are carrying price tags of $25.000 to $40.000 per square foot, compared with $15.000 and $25.000 per square foot respectively three months ago. As stocks are drying up after a buying spree that started in September, sellers are having an upper hand in raising prices by leaps and bounds. There are a growing number of transactions with longer-than-normal completions, a sign that the price is too high that buyers are using a longer completion time to justify their purchase. Also, there appears to be more confirmor* sales in the market today, as speculators are returning after 10 years. All this is reminiscent of the heydays of 1997, when the property bubble burst on the back of a high level of speculation activities and an about-turn of the economy.

It is still early to tell if a bubble has formed in the luxury property market or whether Hong Kong will weather the impacts of property slumps in China and the US. It will depend to a large extent on (1) the time it takes for the US economy to complete its soft landing, (2) the impacts of the central government’s cooling measures on the major property markets in mainland China and (3) the growth rate of China’s economy (which we think is the most important). A booming economy across the border will certainly benefit Hong Kong’s financial market and eventually, its property market.

*Confirmor sale means the purchaser of a property sells his equity interest in the property to a third party before completion of his own purchase.

By Karen Xu