Investors reacting to the Hong Kong government’s campaign to curb home buying in the world’s most expensive market are shifting money into parking spaces, pushing up prices that in high-end neighborhoods can match the cost of two U.S. homes.
The average price of a previously owned parking spot in residential complexes rose 6.7 percent to HK$640,000 ($82,600) in the third quarter, the second highest on record, from the prior three months, according to Centaline Property Agency Ltd. A space in the exclusive Repulse Bay area sold in May for HK$3 million ($387,000), the most for a single transaction and more than double the median U.S. home price, according to CarparkHK.com, a website that tallies parking-spot information.
Hong Kong Chief Executive Leung Chun-ying has unveiled three major sets of curbs on home buying since taking over in July, amid concerns that continued U.S. stimulus would attract more funds into the city and fuel an asset bubble. Apartment prices in the city doubled in almost four years, driven by near record-low interest rates and an influx of money from China.
“There’s just too much liquidity in the market,” said Simon Lo, Hong Kong-based executive director of research and advisory at property broker Colliers International. “The government has set up a firewall for residential properties, but all this money still needs to find a place.”
Home prices gained 4.4 percent in the third quarter, according to Centaline, the city’s biggest closely held realtor by market share. Hong Kong is the priciest place to buy a home, according to broker Savills Plc, which compared prices in 10 cities, including New York and London.
Most parking spaces in Hong Kong, including those inside residential complexes, are freely transferable with separate ownership titles from the apartments, according to Hong Kong City Parking, which operates 10 parking garages in the city. Even so, some garages have rules prohibiting nonresidents from entering and parking on the premises, which lowers the leasing options available to the owners, said City Parking Chief Executive Officer Josh Wong.
Spaces in industrial and commercial buildings also are transferable, though landlords at most prime-office and shopping locations normally hold on to parking spaces to benefit from the stable rental returns they provide, said Wong.
“The circumstances are providing a perfect combination for a bubble in parking spaces,” he said. “There are demand-supply imbalances in some districts and the banks are pushing for the mortgage business.”
Hong Kong banks normally lend a maximum 50 percent of a parking space’s value, compared with 70 percent for residential properties, according to Kenneth Tsin, head of property loans at Bank of East Asia Ltd. Parking-space mortgages are riskier for banks compared with residential- and commercial-property mortgages, Tsin said.
“They are relatively less marketable than flats and shops, while their values are also less resilient than those of housing prices,” he said.
Developers often sell the spaces independently from the residential units. Cheung Kong (Holdings) Ltd. sold 514 parking spaces at its Festival City project in the city’s north on Nov. 24 for HK$980,000 to HK$1.3 million, said Roy Choi, a regional sales director at Centaline.
While realtors post listings of parking spaces for sale and charge fees on deals, few brokers specialize in them because the margin is too small, said City Parking’s Wong. Most buyers go to websites such as CarparkHK.com or ParkingHK.com, which partners with Hong Kong City Parking, for information.
Jerry Yeung, a 28-year-old stock broker, bought a parking space in a residential complex near the Olympic subway station, about a 10-minute train ride north of the Central business district, for HK$1.02 million earlier this month, just a week after the government announced its latest home-buying curbs.
“All these measures make buying apartments so much riskier,” said Yeung, who plans to lease the space for HK$3,000 a month. “Parking spaces are a much easier and simpler investment, plus you don’t need too much capital. If things in the apartment market don’t change, I’ll probably stick with this for a while.”
A parking space at Lohas Park, a middle- to low-end residential project in the city’s northeast, sold for HK$910,000, Centaline said Nov. 4. The space is being leased for HK$3,300 a month, equating to a yield of about 4.4 percent.
By contrast, a 900-square-foot apartment in the same project is being sold for HK$5.18 million, according to Centaline. With a monthly rental of HK$15,000, the yield is around 3.5 percent.
The record for average parking-spot prices is HK$660,000, set in the fourth quarter of 1997, just before the city’s last major real estate crash.
The HK$3 million paid for the parking space in Repulse Bay, a residential district that’s home to some of the city’s richest people, including billionaire Cheng Yu-tung, is the highest on record, according to data compiled by CarparkHK.com, which also sells advertisement space for auto-related products.
Average yield for a parking space has fallen to as low as 4 percent in some districts from more than 5 percent two years ago and may decline to around 3 percent next year “if the frenzy persists,” said City Parking’s Wong.
Hong Kong, with 7.1 million people and a vast public-transport network, including subways, buses, ferries and trains, has one of the lowest car ownership rates among developed countries, with 56 cars per 1,000 people, according to World Bank statistics in 2011. That compares to 439 in the U.S. and 101 in Singapore.
Those that do drive tend to do so in luxury: high-end cars such as Rolls-Royces, Bentleys and Mercedes-Benz accounted for 47 percent of total private-car sales in Hong Kong during the first 10 months of this year, according to figures compiled by industry analyst IHS Automotive.
In space-starved Hong Kong, the government charges a minimum first-time purchase registration tax of 40 percent of the value of a private car, and a minimum HK$3,929 annual license fee.
After Leung, a former property surveyor, imposed a 15 percent tax on non-local and corporate homebuyers and raised a resale tax on Oct. 26, 68 parking spaces changed hands in the next seven days, rising to 207 spaces in the week ending Nov. 16, compared with 33 recorded in the week before the announcement, according to figures compiled by CarparkHK.com. That’s the most transactions in a week since the website began collecting such data in February 2011.
“We have already seen investment going from properties to parking ever since” the government first imposed an extra tax on property transactions in 2010, said City Parking’s Wong. “The latest set of measures just gave it another push.”
The government won’t rule out introducing measures to prevent a bubble from forming in the nonresidential market, Financial Secretary John Tsang wrote on his blog on Nov. 4.
There were more than 8,300 parking space transactions in Hong Kong in the first 10 months of this year, accounting for 8.9 percent of all property deals, real estate broker Midland Holdings Ltd. said. That percentage is the highest since records were first kept in 1997.
“The numbers suggest there’s a negative correlation between parking spaces and homes,” said Buggle Lau, chief analyst at Midland. “The taxes have driven investors away from buying apartments.”
Borrowing costs in Hong Kong are almost at record lows because the Hong Kong dollar’s peg to the U.S. currency ties monetary policy to the Federal Reserve’s even as the economy is driven by China’s growth. The city’s biggest lenders such as HSBC Holdings Plc and Standard Chartered Plc charge an average 2.15 percent on home loans, below the city’s inflation rate of 3.8 percent.
“At this interest rate nobody wants to leave their money in the bank,” said Wong Leung-sing, an associate director of research at Centaline. “When you try and stop people from investing in homes they have to find something else. Shops and offices are probably too expensive for most retail investors. Car spaces are the best alternative for them.”