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News from Knight Frank Hong Kong

Despite policy address sets positive direction for housing, home prices continue to skyrocket

11 October 2017

Chief Executive Carrie Lam announced today a series of measures on the government’s housing and land strategies in her first Policy Address. These include industrial revitalisation scheme, “Starter Homes” scheme, green form subsidised home ownership scheme, Interim Scheme to Extend the Home Ownership Scheme Secondary Market to White Form Buyers (Interim Scheme), the Development of the Convention and Exhibition Industry in Wan Chai North etc. Knight Frank believes the Policy Address sets the right direction for housing, but it takes time to monitor the effectiveness of the policies. 

 
Starter Homes Scheme
 
Alnwick Chan, Executive Director and Head of Valuation and Professional Services, agrees that the government’s starter homes scheme carried out by Public Private Partnership (PPP) is heading in the right direction. Developers may be interested in collaborating with the government to develop Starter Home scheme flat with agricultural lands that have yet to be rezoned. Developers are expected to assume a discounted land premium and produce ample supply of residential projects. However, this will all be subject to lengthy application process with the Lands Department. As the participation is voluntary for developers, Knight Frank suggests the government and developers reach a consensus on the premium payment and plot ratio as well as reduce the time used in the process of premium negotiation.
 
Thomas Lam, Senior Director and Head of Valuation and Consultancy at Knight Frank supports the government to add ‘property ladder’ under the premises of not affecting public housing and home ownership scheme housing supply. However, the government should consider home purchase needs for different income levels and review the policy and income limits for public housing as well as home ownership scheme. Targeted family with household income at a maximum of HK$68,000 will be eligible for the Starter Homes scheme, however, this segment only takes in a small portion of the population (approx. 10%). Should the Starter Homes scheme provide a large sum of housing supply, it will potentially influence the small size private flats in the first-time homebuyer market. Moreover, the Starter Homes scheme flats will locate in remote areas, hence the second-hand market may not be very active. In the long run, owners will possibly keep the Starter Home scheme flat while simultaneously purchasing private housing which in turn will be a waste of resources. Therefore, Thomas Lam is keen on the government’s execution of the long-term plan.
 
Knight Frank speculates that the Starter Homes Scheme flat will bring pressure for small and middle size property developers as they focus on small flats, while the policy will have less impact on large developers.
 
Knight Frank believes that in order for Starter Homes Schemes to succeed, it must offer certain attractions, for example, will it provide more benefits than Home Ownership Scheme Housing? Will it be more accessible for property owners to get on board?
 
Green Form Subsidised Home Ownership Scheme (GSH) and Interim Scheme of Extending the Home Ownership Scheme (HOS)
 
Knight Frank believes that the concepts of GSH and HOS are well intended, however, the supply must be sufficient to meet the demands. Due to the rising needs for public housing and the length of the waiting list for housing, we propose to look at all "property ladder" to avoid the impact on the property market during the property downturn period. 
 
Industrial Revitalisation Scheme
 
Adam Lee, Senior Director and Head of Land Advisory Services at Knight Frank says, the proposed exploration of the wholesale conversion of industrial buildings into transitional housing helps to increase temporary homes supply. Under the existing Buildings Ordinance, the plot ratio and lighting requirements of industrial buildings are different from residential buildings. The feasibility of this scheme is doubtful. If the scheme is implemented, the relevant ordinances should be amended accordingly.
 
Thomas Lam thinks industrial revitalisation helps encourage the creative industry and co-working space’s development. In the first phase of the revitalisation project, the scheme encouraged en bloc industrial buildings conversion. We support partial conversion of the building in the second phase. The government should actively look into the problems of subdivided flats, fire safety, other illegal usage as well as leasing industrial buildings as short term residential use. 
 
The Development of the Convention and Exhibition Industry in Wan Chai North
 
Estimated by Knight Frank, the completion of the proposed new convention and exhibition venue, hotel facilities and Grade A offices in the proximity of the existing Hong Kong Convention and Exhibition Centre (HKCEC) may take 8-10 years. As the reprovisioning of Wan Chai Sports Ground may take place upon Kai Tak Sports Park’s completion, and it takes time to relocate the three government buildings, the proposition may not be completed within this administration of the HKSAR.
 
The new Grade A office spaces complement with the future MTR line in Wan Chai North, Thomas Lam expects the price of Wan Chai North office will increase 10-15%, and around 2 million sq ft of commercial and exhibition spaces will be created upon the relocation of the three government buildings.
 
Knight Frank Hong Kong Office Services Senior Director Nelson Lam believes the Wan Chai North development is beneficial to the office market in the long run. There is currently a shortage of Grade A office supply in Wan Chai North and the office buildings in general are old developments, hence the new supply and the construction of Central-Wan Chai Bypass will stimulate market demand. The rental may be under pressure in the short term, however the new Grade A office supply in the area will attract tenants who wish to move out from the Central district which will stimulate the rent in the future.
 
Pre-fabricated modular homes
 
David Ji, Director and Head of Research & Consultancy at Greater China, Knight Frank agrees on the Government helping non-profit organisations explore the feasibility of constructing on building pre-fabricated modular housing on idle sites for transitional purposes. Not only can it provide transitional housing for families waiting for public housing, it also provides a short-term housing supply and improves the living environment of subdivided flat residents. This initiative should alleviate the urgent housing demands in the short run while buying time to implement a long-term housing strategy. Knight Frank recommends the government to form a dedicated department to coordinate Lands Department, Planning Department and Housing Department to conduct an in-depth research, while simultaneously resolve the housing problems in a safe and cost-effective way.