Property slowdown could be blessing in disguise

Hong Kong is facing a property crash as a combination of factors spells the end of a wild ride in the sector.

Wealthy Chinese mainlanders purchasing homes in the Special Administrative Region (SAR) have pushed up prices beyond the reach of many Hong Kongers in recent years. In response, the government brought in measures to cool the market, including an increase in stamp duty for non-resident buyers.

But this has coincided with a tightening of credit conditions in China as the world’s second-largest economy goes off the boil, sparking a scramble by mainlanders to sell off their Hong Kong residences, in some cases for up to 20 per cent less than they paid for them.

The South China Morning Post reported that a Hong Kong housing development called Valais where luxury properties were being snapped up for more than $9 million a time four years ago, was now more like a ghost town.

Other reports indicate there are growing fears of similar crashes in mainland Chinese cities such as Beijing and Shanghai where house prices have also risen to unsustainable levels.

While the Hong Kong housing bubble may be bursting, the government is pressing ahead with a series of projects which should keep the SAR’s construction industry busy for the next decade.

In his recent policy address, Chief Executive Leung Chun-ying announced support for the development of a new central business district in East Kowloon, the redevelopment of the old Kai Tak Airport – “a huge and highly complex development project spanning a total area of over 320 hectares” - and an ambitious program to make Lantau Island the third major centre of Hong Kong’s population after Hong Kong Island and Kowloon.

This is in addition to work already well under way on the 55-kilometre bridge across the Pearl River estuary that will link Hong Kong with Macao and the mainland city of Zhuhai.

In his address Leung noted that Hong Kong International Airport at Chek Lap Kok, which opened in 1998, would soon reach full capacity.

“There is an urgent need to construct a third runway to maintain our position as an aviation hub as well as our competitiveness,” he said.

“Planning work is being taken forward at full speed with a view to commissioning the third runway by 2023.”

With this commitment to ambitious projects, Hong Kong seems well placed to weather a significant slowdown in the property sector. Indeed it may even be a blessing in disguise as there have been concerns that its construction workforce was not sufficient to cope with a continued housing boom and a major infrastructure program.