Transcript Presentation by - Professional Property Services Limited

Property Markets
HONG KONG
Hong Kong Property Market
Influence of Government –
Leasehold land tenure system
Principal generator of land supply
– Disposals – application list system
– Lease modifications
– Agencies – URA, MTRC, KCRC
Dependence on land revenues
Major owner and until recently provider of
social housing
PPS
A More Predictable Property Market?
Shift from trading to investment mentality
More comprehensive long term approach
to planning and land use
Land supply driven policy
Non intervention by Administration
Re-think of housing policy
Market largely driven by fundamentals
PPS
Market Overview - Residential
Ultimate barometer of Hong Kong’s well
being
In recovery mode but is it sustainable?
Three markets within a market plus public
housing sector
Potential issues relating to supply in 20062007
Vulnerability to increases in interest rates
Speculation at top end
PPS
Hong Kong :
Home Ownership – private sector
Traditionally builds 25,000 – 35,000 units per
annum
Land obtained through purchase / lease
modification
In lead up to 1997 prices driven by speculative
attitude and opportunity to make quick profit, not
aspiration to own one’s home
Post 1997 market collapse – values fell by some
65%. Most families in negative equity
Correction lasted for best part of 6 years, now
seeing market revival driven by fundamentals
PPS
Total Stock of Private Residential Units by Class in
Hong Kong
Class D (53,646 units)
Class E (24,112 units)
5%
11%
Class C
(110,624 units)
2%
34%
Class A (361,243)units)
Class B (501,137 units)
48%
Classification of Residential Units by Class :
Class A - saleable area less than 40m²
Class D - saleable area of 100m² to 159.9m²
Class B - saleable area of 40m² to 69.9m²
Class E - saleable area of 160m² and above
Class C - saleable area of 70m² to 99.9m²
PPS
Sources: Rating and Valuation Department
Hong Kong Residential Market (Overall) Supply,
Supply and
Take-Up (units)
Take-up & Vacancy
Vacancy (%)
40,000
8.0
7.0
35,000
6.0
30,000
5.0
25,000
4.0
3.0
20,000
2.0
15,000
1.0
10,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003 2004F 2005F 2006F
Supply
29,400 33,380 26,222 27,673 34,173 22,621 19,875 18,202 22,278 35,322 25,790 26,262 29,428 34,329 22,288 21,281 18,736
Take-up
30,675 23,348 22,683 27,316 23,245 24,715 20,476 15,090 13,044 19,560 29,180 19,318 20,000 23,000 24,000 23,000 26,000
Vacancy Rate
PPS
3.5
4.2
4.2
3.9
4.7
4.1
3.7
3.8
4.5
5.9
5.4
5.7
6.3
7.0
6.6
6.2
0.0
5.4
Sources: Rating and Valuation Department, HKSAR &
Insignia Brooke
Hong Kong Residential Market
Price Index
(1999=100)
Annual Price Indices (1999 = 100)
180
170
160
150
140
130
120
110
100
90
80
70
60
50
40
30
Indices (Overall)
PPS
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004F
2005F
2006F
61.1
85.2
93.0
114.9
107.3
116.9
163.1
117.1
100.0
89.6
78.7
71.5
70.8
74.3
81.7
89.9
Sources: Rating and Valuation Department, HKSAR &
Insignia Brooke
Hong Kong Residential Market
Annual Rental Indices (1999 = 100)
Rental Index
(1999=100)
180
170
160
150
140
130
120
110
100
90
80
70
60
50
40
30
Indices (Overall)
PPS
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004F
2005F
2006F
82.4
90.4
97.4
118.1
120.7
119.0
134.5
112.6
100.0
98.1
95.4
85.4
81.1
86.8
95.5
105
Sources: Rating and Valuation Department, HKSAR &
Insignia Brooke
The Leighton Hill, Happy Valley
Housing the Community
The role of Government
– Stabilising society
– Facilitation
– Financial support
– Social need
The role of the private sector
– Responding to market demand
– Assisting Government with physical provision
PPS
Hong Kong :
Home Ownership – Public Sector
HA provided 649,000 pr flats for 2,019,000
persons representing 30% of Hong Kong’s
population
Sold 405,500 flats through various subsidised
home ownership schemes
Provided over 100,000 loans for flat
purchasers
Built 2.26M sq m of commercial/retail space
and 100,000 car parking spaces
PPS
Hong Kong – Government Housing in 1970
Hong Kong :
Wind of Change (I)
HA supply intended to complement / augment
private sector but at times of high
unaffordable prices HA became prime
producer and competitor of private sector
Up to 100,000 units per annum at peak. Sold
at discount from market value, quality good
Collapse of property market. Private sector
now affordable. Rebellion by private sector
producers
PPS
Hong Kong :
Wind of Change (II)
Government now exited subsidised purchase
provision and focus is to facilitate cost
effective provision of quality public rental
housing
Also move away from physical provision to
financial assistance and entrusting private
sector developers with building units which
are then allocated to nominated Government
buyers / tenants. Voucher system rather than
physical provision under serious
consideration
PPS
Modern Public Housing
Market Overview - Office
Relatively weak demand continues
Wide range of choice
Move back to Central
Few new entrants to market
Grey space disappeared but essentially a
case of musical offices
Main rental movement restricted to Grade
A and Central
PPS
Supply, Demand & Vacancy in Prime Areas
New Supply & Take-up (net sq ft)
Vacancy Rate (%)
4 ,0 0 0 ,0 0 0
1 6
3 ,0 0 0 ,0 0 0
1 2
2 ,0 0 0 ,0 0 0
8
1 ,0 0 0 ,0 0 0
4
0
0
* As of September 04
2004*
2003
2002
2001
-4
2000
1999
1998
1997
Vacancy Rate
1996
1995
1994
Take-up
1993
1992
1990
-1,000,000
1991
Supply
Source : CB Richard Ellis Limited
Hong Kong
Market Overview - Retail
Strongest market sector, fuelled by
Mainland visitors
Traditional areas of Causeway Bay & Tsim
Sha Tsui in demand
Re-emergence of strata title investors
Re-configuration of 1st and 2nd floor
podium space to retail use
HA REIT initiative
PPS
The Arcade, Cyberport
New Retail Property REIT
Link REIT to be launched in Hong Kong in
mid-December
First Hong Kong REIT and one of biggest
launches this year
151 Housing Authority shopping centres
and 79,000 carparks valued at US$4
billion
PPS
Market Overview – Other Sectors
Interest in 2/3 star hotels, fuelled by
Mainland tour groups
Hotel occupancies up, but room rates still
not back to pre SARS level
Conversion of industrial sites to hotel and
guest house use.
General business zoning failed to rekindle
interest in industrial stock
Loft experiment also unsuccessful
PPS
Market Prices and Yields
Residential
1.Mass Market
2.Luxury
Yield
Office (Grade A)
Yield
Retail (Zone A)
Yield
PPS
US$6,500 per sq.m.
US$13,000 per sq.m.
3-4% net
US$9,000 per sq.m.
5% net
US$50,000 per sq.
6% net
Market prices and yields (continued)
Industrial
Yield
Hotel (3/4 star)
Yield
PPS
US$1,500 per sq.m.
8-9% net
US$500,000 per room
7%
The Market Players
Those for whom real estate is a significant
part of their business
– Property Developers
– Property Investment companies and funds
– Banks – funders of and lenders to real estate
sector
– Service providers
– Contractors
– Government
PPS
Health Warnings (I)
Continued Government involvement
Lack of meaningful institutional investor pool
Trading mentality still prevails
Lack of sophisticated asset management
expertise
Failure to resolve long term policy/strategy issues
–
–
–
–
PPS
Harbour
Heritage
Sustainability
Urban Renewal
Health Warnings (II)
Absence of successful P/P model
Potential volatility of supply
Lack of joined up thinking
Need for strategic planning authority
No account yet taken of intangible returns
PPS
S.W. Kowloon – Aerial View
S.E. Kowloon – The Existing Platform
MTRC Mission
To develop and manage a world class
railway together with property and
other related businesses, to enhance
the quality of life in Hong Kong.
We are a company that builds and operates
railways and designs and builds
communities.
PPS
Facts & Figures
Total route length : 88 km
Total no. of stations : 49
Daily hours of operation : 19 hours
Total no. of passengers in 2003: 842M
Average daily patronage : 2.3M
(with a record high of 3.1M on
Christmas Eve 2002)
MTRC Portfolio by Railway Lines
Urban Lines
234,898 sq m
299,363 sq m
31,366 flats
Total GFA: 2.6 million sq. m.
Development
Management
126,490 sq m 130,367 sq m
28,729 flats
Airport Railway
611,968 sq m
307,880 sq m
28,896 flats
294,072 sq m
Development
Total GFA: 3.5 million sq. m.
Management
254,190 sq m
Tseung Kwan O Line
46,170 sq m
13,345 flats
Legend
Total GFA: 2.3 million sq. m.
Development
Office
Retail
Residential
103,130 sq m
132,014 sq m
28,800 flats
Hotel/Service Apt
Kowloon Airport Station - MTRC
Brown v/and Green Debate
Challenge of multiple ownership in urban areas
Attraction of green field approach
Ever growing demand for city living
Rural to urban migration
Absence of, and a reluctance to use, compulsory
mechanisms
Growing attention to quality of life capital
Reducing pressure on existing infrastructure
PPS
Urban Regeneration Area
Ma On Shan, Shatin
PPS
Allocation of Development Gains
Differentiation between capital gain attributable
to market forces and a direct increase in land
value attributable to an administrative decision
No taxation of capital gain
Increases in value arising from planning decision
or lease modification are shared, but reasonable
allowance made for developer’s profit and for
the before value of the asset
Payable at time of decision in full. Focuses the
mind, but subsequent increases in value accrue
to the developer only
PPS
Tuen Man New Town South
Historical Background – New
Towns
PPS
Shortage of suitable building land in
urban areas.
Challenge of multiple ownership
Areas of flat farming land in the New
Territories
Influx of 2 million refugees from
Mainland China
October 1972, Governor approved major
housing programme to provide homes
for 1.8 million people by mid-1980’s
Historical Background – New
Towns (continued)
More than half of these were planned to
be in New Towns
Adoption of long term comprehensive land
use-transport-environmental framework
First generation New Towns – Concept of
balanced development and self
containment
PPS
Lessons Learnt – New Towns
Importance of early provision of
infrastructure, schools, etc
Need for public housing / Government
office decentralisation to act as catalyst
and anchor
Private sector will follow but will not lead
PPS
Lessons Learnt – New Towns
(continued)
Policy of self containment difficult to
achieve in practice
Attraction/pull of bright lights and higher
salaries in urban areas
High densities defeated green and other
environmental priorities
PPS
Johnston Road Shophouses
(1)
History of Urban Renewal Authority
(URA)
Established May 2001 to set new
direction for urban renewal in Hong
Kong
Previous LDC constrained by
requirement that each scheme should
satisfy commercial viability criteria
Mission is to revitalise run down areas
through redevelopment, revitalisation
and rehabilitation
PPS
History of URA – Cont’d
At same time preserve culture and
heritage and buildings with historical value
Endowed with compulsory purchase
powers and ability to offer cash
compensation and/or rehousing
arrangements to affected parties
Tasked to implement 225 projects in 20
years, and 43 in first five years
PPS
Lessons Learnt – Urban Renewal
Social content renders most schemes
commercially non-viable
Need for acceptance that social element is a
cost to the community at large
Redevelopment should be a matter of last resort
and focus should be on regeneration and
revitalisation
Social impact and the people factor are key
issues to be addressed and reality is that soft is
often more important than hard
PPS
Johnston Road Shophouses
after preservation
PPS
Thank You!
Professional Property Services
Limited