Price Recoveries Since 3Q 2003: Some Are More Equal Than Others

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

May 2004 

Since the 3rd quarter of last year (2003), residential real estate prices have been recovering as evidenced in the secondary market. Nonetheless, the level of recovery is not the same for all districts and properties, with some (reportedly the most luxury properties) rising by 100% while others fairing no more than 30%. The overall rate seems to lie somewhere between 40 to 60%.

We have done a brief study using some of the properties used in calculating / compiling of the Centaline・s residential real estate index Some findings as follows:

a)      Not all the properties used in the index are investigated, but the ones selected represent many of the popular residential districts in Hong Kong = Hong Kong Island: Central Midlevel, Western Midlevel, Tai Hang, Happy Valley, Quarry Bay, Chai Wan etc; Kowloon Peninsula: Kowloon Tong, Lai Chi Kok, Hunghom, Tsuen Wan, Lam Tin etc; and the New Territories: Shatin, Ma On Shan, Tai Po, Fanling, Yuen Long, Tin Shui Wai etc.  The unit real estate price i.e. HK$ / ft2 GFA is used.

b)      Most properties have recovered by some 40% - 60% = with several hovering lower at around 30+% e.g. Kingswood Villas in Tin Shui Wai, while a few exceed 70% e.g. Royal Ascot in Shatin.

c)      The rate of recovery (increase) has no or little correlation = to the household income level in the district / property, the education level, the job title, building age, or even the average householder age. Vaguely though, the better .perceived・ properties, i.e. in terms of developer brand recognition, location, built quality, and / or even property management etc, seem to have faired better. Having a relatively larger development scale seems to have helped too.

d)      Real estate prices correlate to household incomes = and the correlation is strong at around 0.90, irrespective of whether the current prices or 3Q 2003 prices are used. In turn, household incomes correlate quite with education level as well.

e)      An inter-portfolio comparison = is done among the selected properties using a simple formula of comparing the household income level of the properties concerned with the unit price level of the properties concerned. Only household income is used as its correlation is significant enough to account for most of the unit price level.

f)        Under-rates, half & half, and over-rates = from the above comparison, 3 groups of properties are created. Under-raters refer to the relative bargains within the selected properties, half & half are the so-so ones, and over-raters refer to those which price levels may already have exceeded its comparative worth. Nonetheless, under-raters include most (not all) midlevel properties, South Horizons, Mei Foo Sun Chuen, Royal Ascot, and Kingswood Villas etc, while over-raters include Robinson Place, Taikoo Shing, Whampoa Garden, and City One Shatin etc. Please note however this comparison is not comprehensive and should only be used sparingly, as only some 20+ properties are involved using a (too) simple formula = i.e. it does not necessarily follow that under-raters would see prices go up while over-raters would see prices go down. Seeking the help of competent professionals is advised.

We still do not think there is any serious real estate bubble yet notwithstanding the speed of price rises (interested parties may refer to the 3rd article appearing in our quarterly newsletter .Real Estate Tech・ 2Q April 2004

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.

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