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Published January 24, 2007

Uber-rich drive HK home prices to new highs

Asian manufacturer buys house on the Peak at record HK$36,000 psf


WITH a prime site on the Peak recently being auctioned for a record sum, globally speaking, Hong Kong luxury housing sales look set for a stratospheric rise in 2007. Property players are expecting up to 20 per cent increase in luxury residential sales this year as demand for up-market homes continues to soar amid limited supply.

Higher and higher: A new record was set with the government sale of a prime Peak site to Sun Hung Kai Properties for HK$1.8 billion

Recent land auctions have signalled robust appetites among investors for luxury housing: in December, a new record was set with the government sale of a prime Peak site to Sun Hung Kai Properties for HK$1.8 billion (S$354 million), making it the most expensive site in the world.

The developer plans to invest more than HK$2.5 billion to erect 10 detached houses on the site. The price paid translates to HK$42,196 per square foot (psf), the highest so far paid for land in Hong Kong.

In Singapore, the highest price achieved for land to date is for The Parisian at 21 Angullia Park. Overseas Union Enterprise, controlled by a Lippo-Ananda Krishnan consortium, has an option to buy the site for $228.1 million, or $1,734 psf of potential gross floor, which the company intends to exercise.

The record for landed property is slightly lower - an expression of interest for six sea-fronting 99-year leasehold bungalow plots in Sentosa that closed in November last year saw a new benchmark price of $1,308 psf of land area.

For Hong Kong, Colliers International director of residential sales Ricky Poon believes a 'super luxury homes' sector is being created, where residential properties are fetching more than HK$100 million.

He says that the previous highs seen during the property bubble of 1997 are easily being surpassed. 'If you compare it to 1997, at that time these kinds of houses were selling for HK$60 million to HK$80 million. A lot of these super luxury places now are going for HK$150 million to HK$160 million or even HK$200 million,' he points out.

These high-end properties are usually concentrated in prime locations, such as the Peak or Deep Water Bay along the southern coastline, where supply is tight. While luxury sales saw an increase of about 5 per cent in 2006, Colliers expects growth of between 15 and 20 per cent this year, pushing the sector to new highs and widening the gap between the high-end and mass residential units.

Stellar economic growth, low unemployment and a freeze in interest rate hikes are contributing to Hong Kong's healthy housing environment, but it is the rise in high net worth individuals tapping the city's assets that is fuelling the luxury sector.

'It's mainly people from the mainland,' Mr Poon says. 'We are also seeing some of the expatriates from the investment banking sector, especially if they have very good bonuses.'

A recent research note by property firm Knight Frank also points to 'uber-rich' individuals in the region who are including a Hong Kong luxury property in their portfolio. For example, in November, an Asian manufacturer bought a new house on the Peak at a new high of more than HK$36,000 psf.

Home prices in Singapore have similarly climbed as investors fork out increasingly higher sums of money for choice units in luxury developments. A penthouse unit at Marina Bay Residences sold for as high as $3,400 psf in December.

In Hong Kong, Knight Frank expects the luxury residential property to be the best-performing sector this year, with average prices growing by 15 per cent to 20 per cent.

Property fund manager Peter Churchouse also points to wealth creation on Hong Kong's doorstep as China's manufacturing industry continues to grow. 'These people weren't as rich or wealthy 10 years ago,' he says.

Developers themselves are betting on a healthy rise in luxury prices in 2007, according to Andy So, a property research analyst at Core Pacific Yamaichi. 'It seems the developers are very bullish,' he says, pointing to the price that Sun Hung Kai Properties was willing to pay for the Peak site. Given that this was done by auction, other developers taking part in the bidding would have been willing to pay similar prices.

Mr So, however, cautions that there may be some speculative buying going on. 'I think if there's no genuine demand there, we could see some problems over the long term.

'I'm bullish in the short term, but in the long term I'm definitely more cautious. In the short term, the growth could be quite drastic, but I think if there's not genuine demand there, in the long run, growth may slow down if the market at the end of the day realises this.'

He points to the vacancy rate for luxury apartments which remains quite high, at around 10 per cent, suggesting end-user demand is not that strong.

In contrast, the mass residential sector is expected to tread water in the next 12 months. According to a recent Knight Frank survey, the gap between the premium for a basket of luxury houses and mass residential properties has widened to 180 per cent in November from 166 per cent a year previously.

Mr Churchouse, a partner at Long Investment Management, says that he was surprised at the lack of movement in the mass market. 'The upper end of the market may drive the mid-market at some point. The gap is wider than I have ever seen it.'

He suggests that the upper range of the mid-priced housing could post growth of 10 per cent to 15 per cent this year if luxury prices continue to rise. Prime Hong Kong office rents in the meantime are also soaring to new highs: a new record has been set for Central commercial space with rent of HK$150 per square foot being paid at Two IFC in the financial district.