Hong Kong’s ambitious development faces housing market storm

Hong Kong's real estate market, once a symbol of prosperity and relentless demand, is now facing a dramatic shift.

Hong Kong's Kai Tak Airport was once famous among pilots for its challenging approach, requiring them to navigate between towering high-rises, and among passengers who nervously gripped their armrests as they caught glimpses into nearby apartment windows during landing, Caliber.Az reports, citing foreign media.

When the new Chek Lap Kok Airport opened in 1998, Kai Tak was handed over to developers. They envisioned transforming the former airport and its runway, which juts into Kowloon Bay, into a hub of luxury condos and high-end shopping. For nearly ten years, the area boomed, setting records at land auctions and drawing eager buyers.

Approximately 14,000 units have been constructed there, accounting for over 8 per cent of Hong Kong’s total new housing supply since 2014, according to Jones Lang LaSalle Inc. However, with the current downturn in Hong Kong's real estate market, many homeowners in Kai Tak now find themselves with underwater mortgages—owing more on their loans than the properties are worth. In July, two companies listed apartments for an average of HK$17,000 ($2,200) per square foot, marking the lowest prices in the area since 2016, and a 25 per cent drop compared to similar properties just three years earlier.

Although other neighborhoods have experienced even steeper price drops, Kai Tak sees a rising number of underwater mortgages due to the high concentration of recently purchased properties. "Kai Tak has a concentration of negative equity because it has been the centre of new projects for the past decade," explains Eric Tso, chief vice president of mReferral Mortgage Brokerage Services. In the second quarter, Hong Kong residents held approximately 30,000 underwater mortgages, amounting to a total of HK$155 billion, according to government data.

While this number has improved slightly from the first quarter—when it reached a 20-year high—JLL forecasts it could exceed 100,000 by the end of the year if property prices continue to fall. With the city's real estate struggles, "cash-strapped developers will offload empty units at drastically reduced prices," wrote Bloomberg Intelligence analysts Patrick Wong and Yan Chi John Wong in a July report. A decade ago, when the government began auctioning plots at Kai Tak, the area was an easy sell: a new neighborhood close to the centre of a densely populated city. The district promised scenic water views, ample green spaces, a cutting-edge sports stadium, and easy access to the skyscrapers in Central. 

The anticipated traffic at a new cruise terminal suggested a vibrant influx of restaurants, shops, and entertainment venues. The first homes became available in 2016, just as property prices in Hong Kong were beginning a steep climb, increasing by 50 per cent over the next three years. However, development setbacks have disrupted these plans.

The Kai Tak Sports Park—the city’s largest sports venue, featuring a 50,000-seat stadium—was scheduled to be completed by 2023 but has been delayed until next year. A monorail, expected to open last year, has been canceled, and an alternative rail link to the nearest subway station—currently a 45-minute walk from the high-rise developments on the former runway—probably won’t be operational until the late 2030s. Frustrated residents have put up banners demanding a transit system for Kai Tak and opposing plans for public housing in the area. 

As for the promised amenities? The area, home to tens of thousands of residents, has only a few supermarkets. The cruise terminal remains largely empty, averaging fewer than three ships a week last year. There are no cafes or pubs, just a single restaurant inside the terminal catering to Chinese tour groups. “There’s a lack of public facilities like museums, libraries, and markets,” says Daniel Yip, who owns a two-bedroom flat at Monaco One, a high-rise near the unfinished stadium. Currently, the mortgage issues present a limited threat to the banking system. 

Although delinquencies nearly doubled to 0.11 per cent at the end of June from the previous quarter, this is still far below the 1.42 per cent peak in 2001, when the property market was struggling from the aftermath of the Asian financial crisis. “Late payments are still uncommon,” says Ivy Wong, managing director at Centaline Mortgage Broker Ltd. “The risk to banks remains low, although this could change if the economy weakens and unemployment rises.” Alfred Tsui, a 38-year-old hair salon owner, purchased a three-bedroom apartment in 2017 in K. City, one of the area’s initial developments.

Four months ago, he listed his apartment for sale at 5 per cent below his purchase price. While there was some early interest when the government removed taxes on second-home purchases, he has yet to sell the flat. Nevertheless, he feels relatively fortunate compared to many other Kai Tak homeowners. “I’m actually quite lucky,” he says. “Anyone who bought at the peak in 2019 is in a much worse position.”