I WORK in the real estate sector in Hong Kong but do not cover the residential property market. Nevertheless, like many residents of the Special Administrative Region, I have been fascinated by recent market developments. Over the past few months, prices have been rising, China buyers have been increasingly active, developers have been launching units and analysts have been talking about the lack of supply. Debate raged over the sustainability of price rises with the argument centring on lingering economic weakness versus abundant liquidity coupled with early signs of economic improvement.
News then broke in late October of Henderson Land’s sale of a duplex at 39 Conduit Road for HK$439 million (S$78.54 million) or a world record HK$71,280 per square foot. What has since ensued is heated discussion over whether dreams of home ownership for the middle class in Hong Kong have been shattered in part due to rich China buyers driving up prices. Calls are being made for the government to tame the raging animal spirits in the Hong Kong residential market.
The themes playing out in the Hong Kong market are to some extent applicable to Singapore, although the Singapore private residential market rally this time round has been mass-market-led while that in Hong Kong is driven by the high end. Still, with Singapore’s imminent opening of the integrated resorts, there could be a new spring in step for high-end properties.
In Hong Kong, questions being discussed include: Are foreigners pricing out locals? Do sky high prices for luxury units matter? What can and should government do to control property prices? What help if any should government render middle-class locals in owning their homes? Are the controversies in the property market a reflection of economic growth in recent years benefiting high-income earners disproportionately while the rest lag behind?
Invariably, there will be some degree of envy when wealthy foreigners come to any city and lord it over the locals. Such a scenario emerges in many a successful city, with rich Russians and Arabs in London, rich China nationals in Hong Kong and rich Indonesians in Singapore. However, should one follow the head rather than the heart, it is not just the Hong Kong property tycoons who ought to celebrate the sale of a luxury unit for HK$71,280 psf but everyone.
Wealthy people have a choice of where to invest their money. Hong Kong people should be proud that there are a fair number of rich people confident enough in Hong Kong’s prospects to pay princely sums for property in the territory. Indeed, having millions poured into residential property helps generate real-estate-related jobs plus spending by the dwellers of luxury properties. Real estate investment may not generate the same amount of economic spin-offs as investment into manufacturing but they still bring economic benefits.
Singapore and Hong Kong share many similarities, key of which is that both cities, in my view, have a bright future catering to a rapidly growing Asia as hubs of finance, trade, transport, tourism, and various other services. Economic success of both cities does depend on keeping an open door to foreigners and this includes being broadly welcoming to participation by foreigners in the property market. Hong Kong has an important strategic fight on its hands of being competitively positioned as Shanghai and Beijing make strides up the league of global cities. The people of Hong Kong should be more concerned with the city’s ability to thrive in an ever-changing global landscape than the state of the property market. Of course, should Hong Kong continue to grow as a key business hub, expect more reports of developers selling luxury units for mind-boggling sums.
Shelter is a basic need of man and owning a home is a key purchase decision for many people. Defining the type of housing that the middle class should be able to afford is, however, tricky. I believe that all policymakers can largely do is to ensure that there is adequate land supply such that there is a range of property types at different price points available. Just as with any consumer product, we should rely on developers to offer choice to meet a variety of needs.
It is not surprising that developments in the residential property market generate strong emotions. Very high prices at luxury projects are not mere aberrations and high prices at the high end can lead the rest of the market up. Nonetheless, the high end typically forms a small part of the wider market and purchasers at the high end tend to be financially strong, Thus, it would be wrong to see high luxury-unit prices as indicative of a property bubble, which is what policymakers rightly fret about. Instead, what policymakers could do is to be more effective in winning hearts and minds – that high prices at the high end are generally a good thing.
More critically, what policymakers in successful Asian cities can focus on is to put any discussion of residential real estate in a wider context. While anxieties of the middle class with regards to home ownership may be difficult to assuage, the state can focus on doing more in other areas to alleviate life’s anxieties such as providing low-cost quality education, healthcare coverage and help with retirement savings. Let the pursuit of making a city a great place to work, live and play go together with ensuring that a range of needs of local residents are well taken care of. While not everyone can live in a prime neighbourhood, everyone can perhaps get reasonably good health care and education.
The writer is a Hong Kong-based real estate executive with extensive experience in the Singapore property market
Source: Business Times, 12 Nov 2009
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