1. Property Markets
HONG KONG

2. Hong Kong Property Market
Influence of Government –
Leasehold land tenure system
Principal generator of land supply
Disposals – application list system
Lease modifications
Agencies – URA, MTRC, KCRC
Dependence on land revenues
Major owner and until recently provider of social housing
PPS

3. A More Predictable Property Market?
Shift from trading to investment mentality
More comprehensive long term approach to planning and land use
Land supply driven policy
Non intervention by Administration
Re-think of housing policy
Market largely driven by fundamentals
PPS

4. Market Overview - Residential
Ultimate barometer of Hong Kong’s well being
In recovery mode but is it sustainable?
Three markets within a market plus public housing sector
Potential issues relating to supply in
Vulnerability to increases in interest rates
Speculation at top end
PPS

5. Hong Kong : Home Ownership – private sector
Traditionally builds 25,000 – 35,000 units per annum
Land obtained through purchase / lease modification
In lead up to 1997 prices driven by speculative attitude and opportunity to make quick profit, not aspiration to own one’s home
Post 1997 market collapse – values fell by some 65%. Most families in negative equity
Correction lasted for best part of 6 years, now seeing market revival driven by fundamentals
PPS

6. Total Stock of Private Residential Units by Class in Hong Kong
Class D (53,646 units)
Class E (24,112 units)
Class C (110,624 units)
Class A (361,243)units)
Class B (501,137 units)
Classification of Residential Units by Class :
Class A - saleable area less than 40m²
Class B - saleable area of 40m² to 69.9m²
Class C - saleable area of 70m² to 99.9m²
Class D - saleable area of 100m² to 159.9m²
Class E - saleable area of 160m² and above
Sources: Rating and Valuation Department

7. Hong Kong Residential Market (Overall) Supply,
Take-up & Vacancy
Sources: Rating and Valuation Department, HKSAR & Insignia Brooke

8. Hong Kong Residential Market Annual Price Indices (1999 = 100)
Sources: Rating and Valuation Department, HKSAR & Insignia Brooke

9. Hong Kong Residential Market Annual Rental Indices (1999 = 100)
Sources: Rating and Valuation Department, HKSAR & Insignia Brooke

10. The Leighton Hill, Happy Valley

11. PPS Housing the Community The role of Government
Stabilising society
Facilitation
Financial support
Social need
The role of the private sector
Responding to market demand
Assisting Government with physical provision
PPS

12. Hong Kong : Home Ownership – Public Sector
HA provided 649,000 pr flats for 2,019,000 persons representing 30% of Hong Kong’s population
Sold 405,500 flats through various subsidised home ownership schemes
Provided over 100,000 loans for flat purchasers
Built 2.26M sq m of commercial/retail space and 100,000 car parking spaces
PPS

13. Hong Kong – Government Housing in 1970

14. Hong Kong : Wind of Change (I)
HA supply intended to complement / augment private sector but at times of high unaffordable prices HA became prime producer and competitor of private sector
Up to 100,000 units per annum at peak. Sold at discount from market value, quality good
Collapse of property market. Private sector now affordable. Rebellion by private sector producers
PPS

15. Hong Kong : Wind of Change (II)
Government now exited subsidised purchase provision and focus is to facilitate cost effective provision of quality public rental housing
Also move away from physical provision to financial assistance and entrusting private sector developers with building units which are then allocated to nominated Government buyers / tenants. Voucher system rather than physical provision under serious consideration
PPS

16. Modern Public Housing

17. Market Overview - Office
Relatively weak demand continues
Wide range of choice
Move back to Central
Few new entrants to market
Grey space disappeared but essentially a case of musical offices
Main rental movement restricted to Grade A and Central
PPS

18. Supply, Demand & Vacancy in Prime Areas
New Supply & Take-up (net sq ft)
Vacancy Rate (%)
* As of September 04
Source : CB Richard Ellis Limited

19. Hong Kong

20. Market Overview - Retail
Strongest market sector, fuelled by Mainland visitors
Traditional areas of Causeway Bay & Tsim Sha Tsui in demand
Re-emergence of strata title investors
Re-configuration of 1st and 2nd floor podium space to retail use
HA REIT initiative
PPS

21. The Arcade, Cyberport

22. New Retail Property REIT
Link REIT to be launched in Hong Kong in mid-December
First Hong Kong REIT and one of biggest launches this year
151 Housing Authority shopping centres and 79,000 carparks valued at US$4 billion
PPS

23. Market Overview – Other Sectors
Interest in 2/3 star hotels, fuelled by Mainland tour groups
Hotel occupancies up, but room rates still not back to pre SARS level
Conversion of industrial sites to hotel and guest house use.
General business zoning failed to rekindle interest in industrial stock
Loft experiment also unsuccessful
PPS

24. Market Prices and Yields
Residential
1. Mass Market US$6,500 per sq.m.
2.Luxury US$13,000 per sq.m.
Yield % net
Office (Grade A) US$9,000 per sq.m.
Yield 5% net
Retail (Zone A) US$50,000 per sq.
Yield 6% net
PPS

25. Market prices and yields (continued)
Industrial US$1,500 per sq.m.
Yield % net
Hotel (3/4 star) US$500,000 per room
Yield 7%
PPS

26. The Market Players
Those for whom real estate is a significant part of their business
Property Developers
Property Investment companies and funds
Banks – funders of and lenders to real estate sector
Service providers
Contractors
Government
PPS

27. PPS Health Warnings (I) Continued Government involvement
Lack of meaningful institutional investor pool
Trading mentality still prevails
Lack of sophisticated asset management expertise
Failure to resolve long term policy/strategy issues
Harbour
Heritage
Sustainability
Urban Renewal
PPS

28. PPS Health Warnings (II) Absence of successful P/P model
Potential volatility of supply
Lack of joined up thinking
Need for strategic planning authority
No account yet taken of intangible returns
PPS

29. S.W. Kowloon – Aerial View

30. S.E. Kowloon – The Existing Platform

31. MTRC Mission
To develop and manage a world class railway together with property and other related businesses, to enhance the quality of life in Hong Kong.
We are a company that builds and operates railways and designs and builds communities.
PPS

32. Facts & Figures Total route length : 88 km Total no. of stations : 49
Daily hours of operation : 19 hours
Total no. of passengers in 2003: 842M
Average daily patronage : 2.3M
(with a record high of 3.1M on Christmas Eve 2002)

33. MTRC Portfolio by Railway Lines
Urban Lines
234,898 sq m
299,363 sq m
31,366 flats
Development
Total GFA: 2.6 million sq. m.
Management
126,490 sq m
130,367 sq m
28,729 flats
Airport Railway
611,968 sq m
307,880 sq m
28,896 flats
294,072 sq m
Development
Management
Total GFA: 3.5 million sq. m.
254,190 sq m
46,170 sq m
13,345 flats
Legend
Office
Retail
Residential
Hotel/Service Apt
Tseung Kwan O Line
Total GFA: 2.3 million sq. m.
Development
103,130 sq m
132,014 sq m
28,800 flats

34. Kowloon Airport Station - MTRC

35. Brown v/and Green Debate
Challenge of multiple ownership in urban areas
Attraction of green field approach
Ever growing demand for city living
Rural to urban migration
Absence of, and a reluctance to use, compulsory mechanisms
Growing attention to quality of life capital
Reducing pressure on existing infrastructure
PPS

36. Urban Regeneration Area

37. Ma On Shan, Shatin
PPS

38. Allocation of Development Gains
Differentiation between capital gain attributable to market forces and a direct increase in land value attributable to an administrative decision
No taxation of capital gain
Increases in value arising from planning decision or lease modification are shared, but reasonable allowance made for developer’s profit and for the before value of the asset
Payable at time of decision in full. Focuses the mind, but subsequent increases in value accrue to the developer only
PPS

39. Tuen Man New Town South

40. Historical Background – New Towns
Shortage of suitable building land in urban areas.
Challenge of multiple ownership
Areas of flat farming land in the New Territories
Influx of 2 million refugees from Mainland China
October 1972, Governor approved major housing programme to provide homes for 1.8 million people by mid-1980’s
PPS

41. Historical Background – New Towns (continued)
More than half of these were planned to be in New Towns
Adoption of long term comprehensive land
use-transport-environmental framework
First generation New Towns – Concept of balanced development and self containment
PPS

42. Lessons Learnt – New Towns
Importance of early provision of infrastructure, schools, etc
Need for public housing / Government office decentralisation to act as catalyst and anchor
Private sector will follow but will not lead
PPS

43. Lessons Learnt – New Towns (continued)
Policy of self containment difficult to achieve in practice
Attraction/pull of bright lights and higher salaries in urban areas
High densities defeated green and other environmental priorities
PPS

44. Johnston Road Shophouses (1)

45. History of Urban Renewal Authority (URA)
Established May 2001 to set new direction for urban renewal in Hong Kong
Previous LDC constrained by requirement that each scheme should satisfy commercial viability criteria
Mission is to revitalise run down areas through redevelopment, revitalisation and rehabilitation
PPS

46. PPS History of URA – Cont’d
At same time preserve culture and heritage and buildings with historical value
Endowed with compulsory purchase powers and ability to offer cash compensation and/or rehousing
arrangements to affected parties
Tasked to implement 225 projects in 20 years, and 43 in first five years
PPS

47. Lessons Learnt – Urban Renewal
Social content renders most schemes commercially non-viable
Need for acceptance that social element is a cost to the community at large
Redevelopment should be a matter of last resort and focus should be on regeneration and revitalisation
Social impact and the people factor are key issues to be addressed and reality is that soft is often more important than hard
PPS

48. Johnston Road Shophouses after preservation

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