Unaffordable Hong Kong

The South China Morning Post published an article today titled "Small flats, big prices, bigger disappointment".  I found it interesting as I'd been having some discussions on the very issue highlighted here - the ridiculously high cost of home ownership in Hong Kong.

Of course, Hong Kong's always been an expensive place to live, ever since I stepped off the plane 15 years ago and found it to be New York on speed/steroids.  Rental yields have traditionally been low, so it made sense for many to rent instead of buying their own place.  But then again, this is Asia.  Buying property is something that's ingrained into the Asian psyche, and as I've learned over the years, in the long run you just can't go wrong with being long real estate in Asia...

I bought a place in Taipei at the beginning of this year.  Property prices in Taipei, too, have steadily risen over the years, and new developments in the city center are now trading at levels that used to be considered top-end luxury prices.  As a long-term value play, I decided to go just across the river from Taipei city limits and picked a reasonably high unit in a brand new river front high-rise.

Mention Sanchung (三重) and the reaction you're likely to get from people tend to fall on the negative side of things, thanks to the checkered past of some of its residents.  These days, however, Taipei County - or rather the New Taipei City (新北市) - is considered somewhat up-and-coming.  My development is the tallest high rise in the area, situated on the river front in between two bridges connecting me to the downtown area near Ximending (西門町) and Taipei Station (台北車站) just across the river, which are 5 minutes away by car.

So, I'm on a high floor in a brand new building, with an unobstructed river front view, and 5 minutes away from downtown by car.  How much did I pay for my new nest / pied-à-terre?  About HKD 2,700 psf gross, or HKD 3,800 psf saleable.  That's easily 50% less than what I would pay if I had chosen something in the city center instead.

And what would that money buy me in Hong Kong these days?  To compare like-for-like, we should only look at new developments.  The SCMP article lists a number of new projects all over Hong Kong along with their current market prices.  To be fair, the article focuses on the smallest unit within each project - which may skew the psf number slightly upwards - but it still gives us a ballpark figure.

The most upmarket development covered in the article was Island Crest in Sai Ying Pun (西營盤).  Of course developer Kerry Properties tried to make it more upmarket by saying it's in Western Mid-Levels, even though it's only one street up from Queen's Road West...  Anyway, the reported price psf of saleable area is around HKD 20,000 (mid price) for the smallest unit, pricing it just under a cool USD 1 million for an apartment with gross area of 500 sq ft...  When I arrived in Hong Kong 15 years ago, that was the price for a 1,000-sq ft apartment in Hillsborough Court on Old Peak Road on the secondary market after 2 years!

The cheapest development, which generated a lot of attention when it was launched earlier this year, was YOHO Midtown in Yuen Long (元朗).  The mid price for the smallest unit is priced around HKD 9,000 psf saleable, and that's waaaay out in the boonies!  We're talking about somewhere that's 5 minutes by car from Shenzhen Bay, not 5 minutes from downtown!

I never expected Hong Kong prices to be "reasonable" and comparable to Taipei, but guess what?  With what I paid in Taipei, I can't even buy a new place in Yuen Long...which means there's no place in Hong Kong I can afford at that price.  I'd have to cross the border to live in Shenzhen.

I had lunch with the CFO of a Hong Kong property developer 3 years ago, and at that time he was lamenting about how the white-collar workers were being priced out of the housing market.  A couple earning a combined salary of HKD 100,000 a month could barely afford the mortgage on a 1,000-sq ft apartment worth HKD 10 million on the secondary market.  Prices have only gone one way since then... I guess the trend is irreversible until we stop seeing a big gush of money pouring into Hong Kong from mainland China...