May 15 (Bloomberg) -- Kathleen Underhill taught the youngest of her three children at home for a year after arriving in Hong Kong in 2011. She couldn’t find an international-school spot for him.
And now, with her son and two daughters in three different places, Underhill and her husband, a pilot at FedEx Corp., have decided to return to the U.S. “partly as a result of the education situation here,” she said.
Hong Kong’s worsening shortage of spaces in its 49 international schools is so critical companies are “seriously concerned” employees will refuse to move there, according to an April 1 report by International School Consultancy Group, a Faringdon, U.K.-based research company.
“We have clients that say, ’I’m not going to move unless they get into a school,’” said Anne Murphy, a director at ITS Education Services Ltd. in Hong Kong, which charges as much as HK$39,500 ($5,096) to guide families through the application process. Parents sometimes approach ITS even before their children are born, she said.
The school shortage could put “the reputation and competitiveness of Hong Kong” at risk, according to a 2012 report commissioned by the city’s Education Bureau.
With a population of about 7.2 million, the city issued 28,380 general work visas last year, up 35 percent from 2009. The expat population is expanding along with local families’ desire for a Western-style education, the 2012 study said.
Demand for primary-school places at international schools will rise 23 percent to 29,281 by 2016 from 2011, creating a forecast shortage of 4,203 places.
In a city that the British established as a trading hub in the 19th century, schools have put the law of supply and demand to work. They sell certificates, known as debentures, ranging from $64,500 to $1.3 million that can guarantee a slot. The types and terms on these debentures vary. Some depreciate in value over time while others are refunded in full when a student leaves. The institutions issue debentures to pay for long-term projects including new buildings and equipment.
Schools limit their issue, making them all the more sought-after. The most expensive certificate issued by Kellett School, a British academy founded in 1976, costs HK$10 million ($1.3 million) and the holder gets top priority for admission. All of the debentures of this type have been taken up, according to Suky Lee, the school’s admissions director. Other types that give lower priority are still available, she said.
Hong Kong International School, which offers priority to holders of debentures costing HK$2,000,000, doesn’t have plans to issue new ones any time soon, the school’s head, Kevin Dunning, said by phone. Tuition for a second grader costs HK$192,000 a year.
“At lower primary, we just don’t have, right now, space to accommodate more kids,” Dunning said.
The system of offering wealthy parents the opportunity to buy a place at the school of their choice is entrenched in the former British colony and “will flourish for as long as the demand for places at the best schools exceeds supply,” said Nicholas Brummitt, chairman of the international-schools consultant.
Cost cuts at multinational companies, banks and law firms mean employees are less likely to have access to debentures, said Paula Walker, Hong Kong manager of Crown World Mobility, a unit of Crown Worldwide Group, which offers relocation services. It’s an “incredibly expensive carrot,” she said.
The cost of living and working in Hong Kong averages $123,000 a year per employee, making it the most expensive for expats and ahead of London, New York and Paris, according to an April report by Savills Plc, a London-based property broker.
Underhill estimated she spent more than 100 hours researching Hong Kong schools before she arrived from Boston.
While she found places for her two elder daughters, her 8-year-old son was “two or three from the top” on a waiting list at a school run by the English Schools Foundation, or ESF, set up by the government in 1967 when the city was under British rule.
“We waited and waited,” Underhill said. “September, October, nothing. So I just got a curriculum online and started doing it.” Local schools aren’t an option because they teach predominantly in Cantonese, she said.
Fees at ESF’s 14 schools are less than half those at HKIS, according to the foundation’s website. The ESF in 2012 introduced its own HK$500,000 debentures, issued annually, as the government phases out its annual funding for the foundation.
Sue Callaghan, who moved to Hong Kong in March 2013 with her husband, a bond broker, had to keep her two children at home for a term after she arrived. Without debentures, you’re “left fending for spaces that just aren’t there.”
Callaghan eventually found a place for her 7-year-old son at the newly established Island Christian Academy. Her 12-year-old daughter -- who initially could get a place only at the Korean International School -- got into a school run by the ESF. Both started in August last year.
The academy, a primary school, opened in 2012 to address the lack of international school spaces, according to its website. It doesn’t issue debentures and has received more than 300 applications for 88 first-year places for the 2014-2015 school year, according to Pam Cherry, who works in the admissions department.
Meantime, the former British colony is promoting new schools. Three sites were allocated last year to operators including New York Stock Exchange-listed Nord Anglia Education Inc. Five locations are intended for other international schools. Harrow International, a branch of the U.K. institution that educated Winston Churchill, opened its Hong Kong campus in September 2012 in Tuen Mun, in the New Territories.
The extra supply should reduce the projected shortfall of primary places to less than 1,500, according to Wendy Chung, principal assistant secretary for education.
Ashwin Ramcharan is taking the entrepreneurial route: he has applied to open a Dutch school.
Ramcharan, who arrived in Hong Kong in 2011 with his wife, is tapping experience investing in startups. He has selected a site in Aberdeen, overlooking the sea south of Hong Kong Island.
The 42-year-old father of two says his venture, which will initially offer 140 places, still requires financing and approval from the government. He’s hoping venture capitalists, angel financiers, or even Dutch companies such as ABN AMRO Bank NV and Unilever Plc step in with a loan.
“I know two Swedish families who have left because of this issue,” he said. “If there’s no school slots next year, we’ll be forced to leave.”
To contact the editors responsible for this story: James Hertling at email@example.com Iain McDonald