June 2009
Peaks and troughs
The Financial Times Limited
2009
By Tom Mitchell and John Aglionby
Bali
has been little affected by the economic downturn In Hong Kong, where real estate is an obsession, a
recession is not taken seriously until property owners
start slashing their asking prices. And, in the second
half of last year, that happened. Across the territory the
numbers on signs in real estate agency windows were
crossed out and replaced with lower ones - usually in red
ink. More recently such scribbling has given way to formal
advertisements, with the bargains highlighted by
downward-pointing red arrows.
On the Peak, Hong Kong's most exclusive residential
neighbourhood, this kind of salesmanship is considered
unseemly; at the sales offices of realtors Midland and
Centaline, both just a short walk from the upper terminus
of the world-famous local tram, there is not a red arrow
in sight. But, even if it's not advertised, prices in this
triangular enclave - bounded by Victoria Peak to the west,
Mount Kellett to the south and Mount Gough to the east -
also fell sharply late last year.
Bonnie Braidwood, an agent in Centaline's "stately homes"
division, is marketing a 3,200 sq ft, four-bedroom
townhouse in the Strawberry Hill development on Plantation
Road priced at HK$95m ($12.3m), or about 20 per cent less
than it would have been 18 months ago. Savills meanwhile
brokered four Peak transactions valued at HK$106m-HK$180m
in the first quarter of this year, with two of the
properties selling for 30 per cent below their original
asking prices.
"We did well in the first quarter but for the coming
quarter I don't know," says Savills' Angel Law, who now
has five detached homes on Rosmead Road with asking prices
of more than HK$200m on her books. "After [the collapse
of] Lehman Brothers [in September 2008] sellers were
willing to adjust their prices [but now they are]
conservative because they know it's difficult to buy
again. They will only sell at prices they know they won't
regret."
Christina Brun, a dentist who runs a charity foundation,
and her husband, Christian, a headhunter, timed their exit
- and re-entry to - the Peak property market almost
perfectly. With two children and another on the way, the
couple bought a slightly "dark and dingy" flat on Peak
Road in early 2007. "We wanted it as a home; particularly
as an expat, the only way for me to settle down is to own
the bricks I live in," Brun says. But as prices soared
through early 2008, "I became uncomfortable living there;
those walls contained too much equity."
They
sold in August 2008 but were eventually tempted back
into the market earlier this year thanks to the price
falls. Their new townhouse on Mount Kellett Road has
beautiful views over the island's south side and it
cost them just 15 per cent more than the amount they
got for their first flat.
Such bargain-hunting is becoming increasingly common,
says Victoria Allan at Habitat Property, who worked
with the Bruns. And, buoyed by a 50 per cent rebound
in the Hong Kong stock market |
The Peak in Hong Kong
|
| since
last October, Peak values are starting to recover - up
15-20 per cent over recent months. "The property
market is remarkably active at the moment," Allan
says. |
"The worst time was October-November
last year," Braidwood confirms. "At the moment it is
relatively stable."
For decades deep-pocketed developers and landlords have
dominated the Peak market, with the latest census showing
that only 40 per cent of the area's 5,682 homes are now
occupied by owners, compared with 56 per cent in the
similarly exclusive Repulse and Deep Water Bay
neighbourhoods. This helps explain why, for an area once
synonymous with colonial grandeur, the architecture can be
disappointingly graceless. Builders paying top dollar for
sites ended up cramming as many "row houses" on to it as
possible.
Yet, given the area's exclusivity and the limited supply
of housing, demand remained high. The peak of the Peak's
market probably came in July 2007, when Sun Hung Kai
Property sold a townhouse at a record price of HK$41,100
per sq ft - following a December 2006 purchase of a lot on
Mount Kellett Road for HK$1.8bn, or HK$42,200 per sq ft.
But the ensuing economic turmoil has led to development
and sales activity being slow ever since.
At 1 Barker Road, right next door to the US consul
general's residence, for example, realtors speculate that
redevelopment work has been pushed back in an effort to
coincide with the economic recovery. SHKP's Mount Kellett
Road development is meanwhile scheduled for completion,
the company says, in "financial year 2011/12 and beyond".
A four-hour flight away on the Indonesian island of Bali,
a popular holiday-home destination for wealthy Hong Kong
residents, the property market is surprisingly in much
healthier condition. "Some foreigners here are in trouble
and might be looking to get rid of their assets so, yes,
we've got opportunities to pick up well-priced properties
but it's not like the market is crashing and everything is
dropping in price," says Dominique Gallmann, chief
executive of Exotiq Real Estate in Bali.
"I'm quite staggered by the resilience of the market,"
adds Matthew Georgeson, a former Hong Kong resident who
set up a real estate company, Elite Havens, on the island.
He recently heard of two "brilliant" properties, one worth
more than Rp31.bn and the other just under Rp20.5bn,
coming on to the market. "And offers of about 70 per cent
of the asking price were rejected straight away".
There are three reasons for the relative buoyancy in the
market. The first is that it has always been virtually
impossible for foreigners to obtain financing for a
purchase on the island. "Because you've got to buy with
cash you're mostly talking about people who have the power
to keep it," explains one Hong Kong banker who recently
spent more than $1m on land and the construction of a
villa near Canggu, in the south-west.
The second is that Indonesia, with its non-export-oriented
economy, has escaped the worst of the financial downturn
and so most property owners are not feeling the pinch as
much as people from other countries. Very few of the
original Balinese landholders are in a hurry to sell and
will wait until they get an offer that interests them.
The third reason is that while demand has dropped, it has
not dried up. Bali is increasingly luring buyers away from
Phuket in Thailand, despite the latter's better beaches
and infrastructure. "We had a very good January and
February," Gallmann says. "March and April were a bit slow
but now the pipeline is filling up again."
Having said all that, the market is not homogenous. While
Georgeson says sales of $1m-plus properties are strong,
the middle range of properties priced from $300,000 to $1m
is suffering. "These [buyers] were spending bonuses [but
now they are] more careful about job security," he says.
Villa resales are also challenging, adds David Leadbetter
of consultancy Hot Property. "There's not much of a market
unless the property's relatively new or in an existing
estate," he says.
Yet land prices continue to show resilience. The cost of
seafront property on the relatively undeveloped Bukit
peninsula on Bali's southern tip has doubled in the past
three years to about Rp500m ($48,000) per are, the
standard 100 sq metre unit of measurement on the island,
while parcels in more developed Seminyak, considered the
"Chelsea of Bali", in reference to the upmarket London
neighbourhood, are up by more than a third to Rp600m per
are. And experts expect the trend to continue. "Prices
might not rise at the rapid pre-crisis levels but they're
almost certainly going to keep rising," Leadbetter says.
Most Bali owners are blissfully unaware of all this,
motivated by the desire to maintain an island idyll not an
investment. "I intend to keep my place indefinitely," says
Darren Fraser, an Australian who lives in Hong Kong but
keeps a four-bedroom villa in Seminyak. "You wouldn't buy
here just for an investment because you're unlikely to get
more than 5 to 7 per cent return a year."
Tony Carey, who works for Oakley eyewear in Hong Kong,
bought a 40-acre cliff-front plot on the Bukit two years
ago for Rp15.2bn and is planning his villa. "We used to do
the Phuket thing but I prefer Bali in many ways," he says.
"It doesn't have the sleaze in your face in the same way.
I love Indonesian food. I prefer the culture, the surf."
Tom Mitchell is a reporter in the FT's Hong Kong bureau.
John Aglionby is the FT's Jakarta correspondent
...........................
Estate agencies Savills, tel:
+852 28424400,
www.savills.com.hk
Centaline, tel: +852 25253889,
www.statelyhome.com.hk
Habitat Property, tel: +852 28699069,
www.habitat-property.com
Elite Havens, tel: +62 361 738 747,
www.elitehavens.com
Exotiq Real Estate, tel: +62 361737358,
www.exotiqrealestate.com |
