General development on real estate industry in Hong Kong

Sources: Hong Kong Economy Yearbook 2005

In all these several decades after the World War II, the political environment of Hong Kong gradually stabilized with steady economic growth and rapid development in the local real estate industry.

In the 1970s, with the rapidly growing local population, the prosperity of manufacturing industries and commercial activities, the consumption need on residential housing, commercial buildings, factories and warehouse rocketed accordingly, which strongly promoted the development of Hong Kong real estate industry with growing scales.

In the 1980s, Hong Kong real estate industry experienced huge fluctuations. During 1981 and 1982, the real estate market was over-heated with irrationally high pricing level on lands and housing. This situation began to be under control in the last season of 1982 when the industry suddenly cooled down with a lot of bankruptcies of real estate enterprises. The industry was not resuscitated until the release of the Joint-Agreement between China and Britain on the issue of Hong Kong’s jurisdiction. The situation continued to be well-off when the time entered 1985. Though the Stock Market Crisis in October 1987 and the political unrest of the “June 4^th Incident 1989” used to cause negative impacts on the real estate market, the real estate industry of Hong Kong continued to grow achieving towards its peak period.

In the 1990s, the real estate industry had become one of the pillar industries of Hong Kong. In 1993 the general climate of the real estate market was highly prosperous with satisfying performance and achievement on different kinds of real estate markets. The price for residential housing witnessed the most rapid growth. Even the industrial real estate market turned out to perform really well.

The pricing of the real estate market reached its peak period in 1994, while the price became to enter the adjustment stage with more modest growth in 1995. In 1996, the strong aftereffect further drove the market to achieve greatly, which almost equaled the peak level in 1994. Since 1997, due to the lack of confidence of the political transformation, the real estate market of Hong Kong went through some huge fluctuations. In the first 10 months of 1998, the market slumped down continuously. Not until October that year did the market begin to recover, which became one of the very unsteady factors causing the capricious performance in the following 1999 and 2000.

The market situation in 2001 was slightly better when compared to the previous year with occasional re-bounces without reaching the bottom. The fluctuation of the Hong Kong economy in 2002 and 2003 continued to influence the performance of the local real estate market.

Operation situation

From the beginning of 2004, the real estate industry of Hong Kong finally entered the fully recovering period with non-stop good news throughout the year for the industry development. The sales of the firsthand and secondhand housing both achieved with great satisfaction, which became the driving force for the resuscitation of the real estate market.

According to statistics released by Hong Kong Land Registry, the real estate market in 2004 witnessed tremendous growth with the number of business reaching 123,480 and a significantly growth by 41%. The total capital involved reached as high as 351.7 million HK dollars with a rocketing growth by 86%. Both renewed the record set in 1997.

According to statistics from the Jones Lang LaSalle, the prices of median and small residential housing reached a growth by 35.3%. The prices of luxury housing grew by 62.2% with some particular villas grew even higher trumping the peak in 1997. As pointed out by LIU Jiahui, the Chief Analyst from the Midland Realty, the number of business accomplished reached the new height since 1997 indicating the full recovery of the local real estate industry and market. The average number of business accomplished for the secondhand realties reached 6,389 also revealed the re-bounce in the secondhand realty market.

With the well-off of the industry climate in 2004, the realty stocking diminished distinctly. It greatly released the pressure of the accumulating stockings bothering the market for years. Another reason for the decrease on stockings was the change of strategy on sales by developers. The total number of firsthand housing units on sale was adjusted from 22,265 in 2003 to 17,028 in 2004 with a decrease by 23.5%, which resulted in that some buyers switched to purchase the stockings instead of the newly-released firsthand realty.

According to statistics, seen from the distribution of locations, the biggest decrease in stocking realty took place in the New Territory with the slump from 8,720 at the end of 2003 to only 3,872 at the end of 2004. The decrease was by 55.6%. The major reason was the huge cut back on the release of the firsthand realty. Though the number of newly-released realty reached 8,501 in 2004 in this district, it still experienced a major diminishment by 44.1% compared to the number at 15,201 in 2003.

In the downtown area, the newly-released housing realty was with the focus on the Hong Kong Island district, such as the Bufulin Bay, the West Bay and Kejiahen Bay areas. In fact, the number of newly-released realty grew by 33% instead of decreasing. The Kowloon district also witnessed a growth by 12.7% with some major residential community construction projects such as Kowloon Emperor Residency, Yuqing Community of Changsha Bay and Green Sea Blue Sky Community etc. With the excellent sales performance in these major realties, the pressure of rise of stockings was largely compromised.

As statistics showed, at the end of 2004, the real estate stockings in Kowloon district decreased greatly from 5,397 in 2003 to 2,788 by 48.3%, while the Hong Kong Island district witnessed a more modest drop from 2,545 in 2003 to 2,284 by 10.3%.

As pointed out by TAO Ruhong, the shareholder of the Consulting Department DTZ Hong Kong, encouraged by the great incentive of land purchasing, the firsthand and secondhand real estate market in 2004 would continue to achieve greatly. Within the year, the municipal government managed to sell out five different land blocks with the sales budget set at 12 billion HK dollars, which was even better rewarded from enthusiastic developers with a total contribution of sales reaching 18 billion HK dollars. One of the land blocks at Zhongtianguang Road’s was sold out at 9.42 billion HK dollars with the second highest price for individual land block in history. The average price per square foot was 5,477 HK dollars with a big rise by 90% compared to the starting price. The Changshi Corp. got the bid of the land block in Ma On Shan with 2.09 billion HK dollars in May. The Sunday Corp successfully bought in the land block in Xinfugang in October with 4.7 billion HK dollars. Jiawua International Corp. bought in the land block in hill road area Causeway Bay by 865 million HK dollars in September. While Huamao Corp. got the land block of the Kowloon City in June with 1.01 billion HK dollars. 

Development Trend

According to the preview by Jones Lang LaSalle HK, the prosperous climate in the real estate market in Hong Kong will continue in 2005. The price for median and small residential housing is expected to grow by 15-20%. The rent for office buildings is expected to achieve the growth by 30-35% and growth in price by 20-25%, while the rent for business stores will be by 10-15% and the price by 15-20%.

Other realty agencies all look up to the real estate market in 2005. According to the DTZ Hong Kong, there will still be enough space for the market growth in 2005 with the general price growing by 30-35%. The preview by CB Richard Ellis also pointed out that the general pricing in real estate market in Hong Kong will continue to grow in 2005 at some stable rate. The prices for median to small size residential housing and luxury housing will witness a growth by 10%. The first-class office buildings will experience the price growth by 20%, while the price and rent growth in stores will reach an increase by 20-25% and 10-15 respectively.

The major developers in Hong Kong all show great interests in the development of the real estate market in 2005. The Sunday President GUO Binxiang, the Hengdi President LEE Zhaojin and the New World President ZHENG Yutong all showed great confidence on the local real estate market with optimistic previews in different public briefings.

As shown in the report from Hong Kong Monetary Authority, in the first season of 2005, though the price continued to grow rapidly, the probability of the real estate bubbles was still very low. Close attention should be paid, however, to the development of the local market as the number of currently accomplished business rocketed. The Authority also pointed out that the “Purchase Confirmer Conclusion” usually means those business conclusions that have been transited to the second buyer before the confirmation of the original trade. It is with a big possibility that those purchase confirmers are speculators sinking for short-term profits.

According to some other statistics sources, till 15th September 2005, the total income from registered contracts of accomplished business on secondhand realties reached 160.7 million HK dollars renewing the record of 160.35 million HK dollars set in 2004, which was also the highest record since 1998. The sales income of the first 9 months of 2005 equaled the total annual income of 2004, indicating the continuous growth on housing price in 2005. Meanwhile, luxury housing released in 2005 also helped promote the sales in the secondhand market with a stunning sales income record.

What’s more, the total income from the sales of registered private housing also witnessed a rocketing growth of 160% reaching 61.07 billion HK dollars in the first 9 months of 2005, though compared to the record kept at 528.01 billion HK dollars, there is still a huge gap by 70%, it indicated that the probability of real estate bubble was safely low.