Mainland Chinese see value in Hong Kong luxury housing
HONG KONG -- Government restrictions on China's real estate market are having a welcome effect for residential developers across the Pearl River Delta: They're propping up sales of certain new luxury properties in Hong Kong.
In Hong Kong — where overall residential property sales are slumping in tandem with other parts of Asia as governments act to bring down inflated real estate prices — new luxury developments are one bright spot in the market.
New developments, especially in prestigious neighborhoods such as Central, the Peak and West Kowloon, are coveted by mainland buyers as a second home or investment property. Even as real estate prices slip and sales volumes plummet in the city, demand is brisk for some new high-end buildings from Hong Kong developers such as Sino Group, Swire Properties and Cheung Kong.
Selling out fast
As developers put blocks of luxury flats up for sale, developments in prime locations near transportation hubs are selling out within a day, according to Knight Frank, a property management firm. Local developers are trying to stimulate demand by pricing new luxury developments closer to the price of secondhand properties, holding road shows and advertising properties on the mainland.
Mainlanders — who account for an estimated 25% to 40% of sales of new luxury flats in Hong Kong — should keep demand for such properties relatively stable in 2012 even as overall real estate prices fall 10% to 30%, some analysts say.
Mainland buyers are also expected to account for a higher percentage of Hong Kong's luxury sales in 2012 as local buyers sit on the sidelines.
"We believe mainland demand will be stronger this year (because) the real-high-net-worth people need to buy a fixed asset," says Thomas Lam, Knight Frank's head of research for Greater China. "They will purchase more properties in Hong Kong."
Strong mainland appetite for Hong Kong real estate has been fueled by the Chinese government's nearly two-year campaign to clamp down on speculative buying in China by requiring larger down payments and restricting the purchase of multiple properties. The measures have given wealthy Chinese consumers — who tend to invest their money in real estate, gold and the stock market — a reason to buy property elsewhere.
Hong Kong's government has imposed its own restrictions to discourage real estate speculation, including higher down payments and an extra stamp duty of 5% to 15% if the property is sold within two years.
Still, "If people in China cannot further invest on the mainland, they will choose to invest in Hong Kong," says Sherman Lai, the chief executive of Centaline, one of the largest real estate agencies in Hong Kong and mainland China.
The mainland's restrictions are also making real estate in markets such as the U.S., Canada, Australia and Europe more appealing.
In Hong Kong, mainland buyers have played a prominent role in the real estate market since the last global financial crisis. In 2008, the Chinese government unveiled an unprecedented $4 trillion yuan ($570 billion) stimulus package to invigorate the economy. The stimulus drove China's real estate and stock markets higher, and fueled inflation. It also sent money surging into Hong Kong real estate, already some of the priciest in the world, to the delight of local sellers and the chagrin of buyers priced out of the market.
