Hong Kong: When the Opus project was unveiled in 2012, its developer boasted that the apartments there, designed by star architect Frank Gehry, would be the most expensive in Hong Kong — and, by extension, probably the world.
That year, the developer — Swire Pacific, a Hong Kong conglomerate — sold one of the 12 units for a record 455 million Hong Kong dollars, then about $58.7 million, making Opus an emblem of the city’s super luxury market. Another unit sold the same year for about $55.5 million. It was the high-water mark of a boom time: From the 2008 financial crisis until 2013, residential property prices in Hong Kong rose about 120 per cent.
Last year, the government sought to cool the market with tighter mortgage rules and a higher tax aimed at some high-end buyers from outside Hong Kong. Still, at the beginning of this month, Swire announced that another Opus unit had sold for $55.5 million. The buyer was apparently local.
The sale illustrated how seemingly bulletproof Hong Kong’s superluxury housing market is, experts say. Prices have remained roughly the same even as the number of transactions has dropped, showing that developers and rich owners are happy to hang on to prized properties — even empty ones — as the rest of the market dips.
“They have holding power,” Thomas Lam, head of valuation and consulting at real estate service provider Knight Frank Hong Kong, said of wealthy investors. “For them, the holding costs are relatively low, and they don’t need the rent. They can keep it empty. High-net-worth individuals already have other homes.”
Another high-profile complex is 39 Conduit Road, a 2009 development that like Opus has achieved sales records. Henderson Land, the developer of 39 Conduit Road, is valuing its Unit A penthouse at $83.3 million. That price works out to $14,460 per square foot, which is significantly higher than Opus’ most recent selling price of $10,257 per square foot.
But the penthouse is not for sale. According to a Henderson spokeswoman, Gabriella Chow, the home is empty and owned by the developers.
For all the hoopla surrounding Opus when it opened two years ago, it remains partly empty. Of the nine remaining units that Swire holds, five are leased, three are available for rent and one is being held by the company, according to Lydia Tsui, a company spokeswoman.
With Opus, Swire used a bidding system to avoid having to disclose a full price list, which would otherwise be required under a 2013 ordinance to prevent backdoor dealings. Rather than list the units on the market, the company collected sealed offers from prospective buyers.
The government does not have statistics on how many privately held properties are empty. But some newer luxury towers in popular districts like West Kowloon are dotted with undressed windows and empty living rooms.
In June, The New York Times reported that Zhang Yannan, a niece of President Xi Jinping of China, owned a villa in the beachside Repulse Bay neighbourhood of Hong Kong, where similar homes cost about $30 million. According to The Times, the villa seemed “vacant” and “falling into disrepair.”
The Hong Kong government has often faced criticism for policies that make homes unaffordable for average families, and it is trying to create more housing stock, which could bring prices down in sectors other than super luxury apartments. The government and the MTR Corp. — a government-linked company that is both the city’s subway operator and a major property developer — announced last month the release of five sites that could provide room for 2,100 apartments. Almost all land in Hong Kong is owned by the government but leased out for private use.
“In most property sectors, values have either stabilised or come down,” said Simon Smith, head of Asia-Pacific research for Savills, a real estate company based in London. “Prices across the board are off 5 to 10 per cent since 2013. And the volume of transactions has come down even more heavily.”
The so-called normal luxury market in Hong Kong — middle- and upper-class homes that cost about $1.3 million or more — is one of the softening sectors. According to a Savills research report released in May, luxury apartment prices were down about 8 per cent from their peak in the fourth quarter of 2012 and were forecast to fall an additional 5 to 10 per cent in 2014.
According to analysts, about half of the purchases at popular luxury developments were by mainland Chinese before the 2013 cooling measures.
Safe haven
“It’s a desire to get money out of China, where people have accumulated vast wealth, but there is only so much room for investment,” Smith said. “And Hong Kong real estate has always been a safe haven.”
In that regard, Hong Kong is most often compared with London but with a different clientele.
“In the case of London, you have a much more international buyer demographic,” Smith said. “Overseas buyers in Hong Kong tend to be mainlanders, and not so much the Arabs, Russians and Europeans.”
The 2013 changes were made in response to public bitterness over luxury homes that were empty while Hong Kong’s poorest had to wait for public housing or live in tiny “cage homes” or “coffin rooms.”
“With the government measures in place, new supply on the way and rates set to rise,” Smith said, “you will see a further correction in prices eventually.”
Opus and 39 Conduit Road are on streets that curve up to The Peak, a high-priced enclave overlooking the rest of Hong Kong Island that is the centre of the super luxury world. But less prominent property developments are spreading across the Kowloon Peninsula and farther afield to the mostly rural New Territories.
On a busy Saturday in June, four luxury developments in Kowloon and the New Territories simultaneously put more than 600 apartments on the market. There were lines of potential buyers outside the buildings, followed by eager agents waving glossy brochures and business cards.
One of the four is the Grand Austin, under construction in West Kowloon. The area is choked with dust, noise and congestion because of two government projects: a high-speed rail terminal that will connect to mainland China and the yet-unbuilt West Kowloon Cultural District. The thinking is that home prices will jump once rich mainland Chinese can commute directly to a complex with shiny new museums and theatres.
In addition, rents and property prices have risen in New Territories areas near the mainland border because of the influx of moneyed shoppers there.
“If you look at future housing supply, only 10 per cent will be on Hong Kong Island, 15 per cent in Kowloon and 75 per cent in the New Territories,” said Lam, of Knight Frank Hong Kong.
On July 8, a week after a large protest calling for greater democracy in Hong Kong, a Barclays Bank representative was quoted by a local newspaper, the South China Morning Post, as saying that a plan by pro-democracy activists to block the financial district could bring about one of the “unexpected shocks” to the property market that he described in a report.
Some critics of the protest movement, called Occupy Central, have warned that political instability could hurt the local economy, but so far the super luxury market has spoken for itself. The recent Opus sale was announced July 1, the day of the huge protest, which by some estimates drew hundreds of thousands of people.
When asked whether unrest could rock super luxury housing, Lam said, “Not unless there are effects to the larger economy or stock market.”
“This is Hong Kong,” he added, a few days after the protest. “Life goes on.”
— New York Times News Service
