Properties

Apartments at $67 Million Set to Test Hong Kong Luxury Market

Frank Gehry-Designed Building
Swire Properties Ltd.'s Opus Hong Kong, designed by architect Frank Gehry, stands on Stubbs Road in Hong Kong. Photographer: Jerome Favre/Bloomberg

Hong Kong developers are poised to find out just to what extent the city’s booming stock market has pushed up demand for luxury housing.

Swire Properties Ltd. is seeking buyers for six apartments at its Frank Gehry-designed building priced as high as HK$520 million ($67.1 million). Wheelock & Co. and Nan Fung Group pulled together an international team of architects to create its “ultra-luxury” house and apartment project in the city’s prestigious The Peak neighborhood, which may go on sale in the third quarter. CK Hutchison Holdings Ltd. and Sun Hung Kai Properties Ltd. are also preparing to sell high-end residences.

The projects are being offered on the back of a stock boom that’s driven Hong Kong’s benchmark index to an almost eight-year high. How they fare may signal whether a recovery in the luxury market, which saw prices rebound to a two-year high in the first quarter, has further to go.

“We can see that the stock market is going to continue to be quite strong, and that tends to be positive for the luxury property market,” said Patrick Wong, an analyst at BNP Paribas SA. “Both the A-share and Hong Kong markets are doing well, so that combined will have a wealth effect.” A shares are those traded on the mainland.

Prices of homes that are 100 square meters (1,076 square feet) or larger climbed 0.3 percent in March from a month earlier while prices of smaller units were unchanged. Luxury residential per-square-foot prices for the first quarter were HK$19,087 a square foot, the highest since the same period in 2013, according to Savills Plc.

Sold Out

History suggests rising stock prices and demand for luxury property go hand in hand: Prices of larger units jumped by almost a third from the beginning of 2007 through the second quarter of 2008, according to government data, a period during which the Hang Seng Index touched an all-time high.

CK Hutchison, controlled by billionaire Li Ka-shing, may start selling two high-end developments in the Kowloon district as soon as this month, according to Executive Director Justin Chiu. They follow sellouts at two cheaper residences earlier this year that targeted first-time homebuyers and middle-class families.

Sun Hung Kai is one of the biggest sellers of luxury properties so far this year, including eight houses on the south side of Hong Kong Island that went for more than HK$100 million each in April. Its Ultima residence, which will have 256 homes including seven standalone houses, may go on sale this month.

Gehry Flats

There are a total of 28 luxury residential projects with homes bigger than 2,500 square feet that could be sold this year, according to property broker Jones Lang LaSalle Inc.

Among them are some targeting the wealthiest of buyers. Wheelock’s Mount Nicholson, located in an exclusive enclave with sweeping views of Hong Kong’s harbor, has houses as large as 10,000 square feet with gardens more than half that size.

The units at the Gehry-designed Opus are back on the market for as much as HK$520 million, or HK$95,518 a square foot, after Swire sold two of them last year. That’s more than the most expensive apartment -- on a per square foot basis -- in Manhattan’s newest condominium tower adjacent to the Museum of Modern Art.

“We have to observe a bit longer to see the wealth effect’s impact on the luxury market,” said Simon Lo, head of Asia research and advisory at realtor Colliers International. “Developers definitely are watching how active the market is.”

Reasonable Pricing

Luxury home transactions dropped off at the start of 2013 after the government imposed an extra 15 percent levy on foreign buyers, one of the key drivers of the high-end market, and doubled stamp duties on all property purchases.

Those measures will continue to weigh on demand as potential buyers are deterred by the extra costs, according to Joseph Tsang, managing director for Hong Kong at Chicago-based Jones Lang LaSalle. Prices of luxury homes -- defined as those between HK$20 million and HK$100 million -- may stay flat or even see a slight decline this year, he said.

“Developers are still quite worried about the luxury market,” he said in an interview. “To ensure brisk sales, they’ll price them more reasonably,” below market expectations, he said.

The Redhill Peninsula, a property in southern Hong Kong Island developed by Sino Land Co. and Chinachem Group in the 1990s, sold units earlier this year at prices about 20 percent lower than in previous sales years ago, Tsang said.

Wealth Effect

Others are more bullish. JPMorgan Chase & Co. this month turned positive on the city’s residential sector, projecting existing home prices will rise 10 percent this year. A “strong wealth effect” from the stock market along with stable employment and limited supply will support residential prices, analysts led by Cusson Leung said in a May 11 report.

Howard Lo, a senior sales director of southern Hong Kong Island at real estate agency Midland Holdings Ltd., said his team has done two deals in the past month where buyers snapped up new luxury homes after reaping profits from stock trading. One sold for HK$50 million while the other went for more than HK$100 million, Lo said.

“Luxury property prices have fallen behind small to mid-sized homes, on a per square foot basis, by quite a lot,” said Lo of Colliers. “In the past couple years, potential buyers were put off by the additional taxes, but now they see supply is very limited.”

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