Aug 01, 2012
Hong Kong and Shanghai’s developed markets versus Taipei’s emerging market
31 July 2012, Hong Kong – Given the uncertainty of the debt crisis in Europe and the US economy still in the doldrums, investors have turned their attention to the relatively resilient markets in Asia, where real estate is a popular sector. Although commercial properties are predominantly in favour by the cross-border property investment fund flowing into Asia, luxury homes in the region have seen high price level, signalling that the residential segment also possesses good potential.
Cross-border investment in the Asia residential sector has gradually seen recovery from the financial tsunami, however, the number of luxury homes available for sale is limited, which suppresses residential investment below 2007 level. Of the Greater China region, the luxury residential markets in Taipei, Hong Kong and Shanghai are recognised as benchmarks.
Amongst these three markets, Hong Kong is an international city, Shanghai is the economic powerhouse of mainland China, while Taipei has a reputation for its vibrant Chinese culture, being the political and commercial centre of Taiwan. As a result, the luxury homes in these cities enjoy their fair share of supporters. In addition, owing to their different regulations and financing means, the cities each boast unique merits for property buyers. The following is a comparison of the three residential markets:
Shanghai
Hong Kong
Taipei
Tax and Regulation
Capital Gains Tax
Yes
Nil
Yes (under review)
Estate Duty
Yes
Nil
Yes
Special Stamp Duty/
Tax on Transactions
Nil
Yes
Yes
Open to Foreign Ownership
Partial
Fully open
Based on reciprocal
Buying Restrictions
(e.g. local residents/expatriates)
Yes
Nil
Nil
Financing
Loan-to-value Ratio
70% (First Home)
50%
60% - 70%
Effective Mortgage Rates
6.55%
(5-year loan or above)
2.90%
2.0% - 2.7%
Market Prices
Average Investment Yield
2.30%
2.80%
1.50%
Market Price Volatility
High
High
Low
Overseas Buyers Ratio
10%
15%
5%
Taipei
Thanks to a low interest rate and a loose money supply, luxury homes in Taipei have seen their prices increasing by about 60-70% in the past five years. A renowned luxury residential development is Treasure Palace, Taipei, of which unit prices have jumped threefold from NT$800,000 per ping to NT$2.4 million per ping in just a decade. This astonishing growth rate is largely attributed to strong demand from Chinese buyers worldwide including those in China, Hong Kong and Taiwan.
Lands in Taipei are privately owned (not government-owned), and the lending rates are the lowest compared to Hong Kong and Shanghai, which are approximately 2%-2.7% per annum. Andrew Liu, Managing Director of Colliers International Taiwan, said, “In view of the benefits from the Economic Coorperation Framework Agreement (ECFA) and stable cross-strait relations, Taipei’s luxury residential prices are expected to rise further. In addition, the increasing number of direct flights between Taiwan and China provides great convenience, making Taipei a favourite for investors and Chinese worldwide. These elements fuel further growth of demand in Taipei’s high-end residences.”
Hong Kong
Of the three cities, Hong Kong’s luxury residential market is the most developed, which has long been appreciated by the super rich in China and Hong Kong, as well as by global investors. In the second quarter of 2012, the average luxury residential price in Hong Kong increased by 5.3% quarter-on-quarter to HK$19,723 per sq ft, representing a level surpassing the historical highs in 1997 and 2009.
Antonio Wu, Executive Director of Investment Services, Asia at Colliers International, stated, “Given the recent upsurge in prices, the luxury homes sector is not likely to see sharp price appreciation in the short run. However, Hong Kong, being a free market with simple tax regimes and low tax rate, is still attractive to investors.”
Shanghai
Harvey Coe, Senior Director of Investment Services, Asia pointed that Shanghai’s residential market is facing different constraints. The maximum loan-to-value ratio for buying first homes is 70%. Under the mortgage and purchase restrictions in force, a foreigner has to provide social security records or tax demand notes to prove that he has lived in the city for a year or more in order to buy a residential unit. Furthermore, the purchase restriction order forbids selling a residential unit to a Shanghai-domiciled family who already owns a home. Cooled down by these measures, the residential transaction activity in Shanghai’s residential market is relatively low.
In the new luxury residential districts, some developers offer deep discounts to drive up sales. However, luxury home prices in the established districts are fairly stable as the new supply is limited, and owners have yet to lower their asking prices. Individual ultra-luxury residential property in Shanghai is selling at an average price of RMB 124,000 per sq m.
