Ten years after its return to Chinese rule, Hong Kong ranks again among the world’s most expensive cities to live in, after a traumatic, rollercoaster

Ten years after its return to Chinese rule, Hong Kong ranks again among the world’s most expensive cities to live in, after a traumatic, rollercoaster ride that has left many homeowners still feeling the pain.

Ms Rebecca Leung’s tiny 500-sq-ft flat in the busy but grimy North Point area of Hong Kong island cost her HK$2 million ($394,000) at the height of the property boom in 1996.

Today, it is worth just 60 per cent of that and Ms Leung can neither keep up the mortgage payments nor afford to sell at such a loss.

She is just one of the city’s 6,700 homeowners still heavily in debt as their property’s value tumbled when the real estate bubble burst following the 1997-98 Asian financial crisis.

Then came the dotcom boom and bust, and finally the 2003 Sars outbreak, shattering consumer confidence as property prices collapsed about 70 per cent from their peak.

During the mid-1990s boom, property was believed to be a sure-fire bet for a quick and reliable profit in the then-British colony, which boasted some of the most expensive houses anywhere in the world.

“A lot of people would buy a property and sell a month later and still could make 10-to-20-per-cent profit,” said Mr Jason Ng, a sales director at real estate agent Midland Realty.

People often bought several properties, hoping to trade them on quickly, but when the Asian crisis hit, the market collapsed, leaving them saddled with expensive debt on homes whose prices kept on falling, Mr Ng said.

The impact was felt everywhere, for as the property market goes so does Hong Kong — with land sales an important revenue source for the government and a key barometer of the territory’s financial well-being.

The turning point came in early 2003, although it was initially masked by the Sars outbreak which traumatised the city and seemed to hint of worse to come.

Instead, helped in no small part by the emergence of China as the world’s manufacturing dynamo, money began flowing through Hong Kong again, drawing in bankers and businessmen anxious to get their share of the mainland growth story.

As demand grew, confidence returned, bringing with it some of the speculative exuberance of the mid-1990s to the point where last year, a luxury residential site on the world-famous Peak fetched a record HK$42,196 per sq ft.

That figure was nearly matched early this week, when a unit at luxury housing project Severn8 at the Peak went for HK$210 million. An unidentified businessman bought the 5,100 sq ft, three-storey hill-side house for HK$41,000 per sq ft.

But if the luxury end has done best, it has still not fully recovered pre-1997 levels, with a recent research report by CB Richard Ellis showing average prices still 23 per cent below the 1997 high.

For the luxury market, Mr Rick Santos, managing director of CB Richard Ellis, is optimistic, partly because of an influx of mainland Chinese buyers.

“There are a lot of very wealthy individuals here. Some of them are buying their homes with a lot of cash. They belong to the super-wealthy class,” he said.

Source: Weekend Today, 16 June 2007