Hong Kong homes in on property

The hankering for bricks and mortar is as strong as ever, Stephen Vines writes from the colony where a modest parking space can cost a cool £60,

At a time when the long-term future of Hong Kong is said to be in question, it may seem bizarre that more than a hundred well-heeled people should spend a night on the street queuing for the right to spend more than £60,000 on a parking space.

Yet the residents of the colony's middle-class Yau Yat Cheun district were simply doing what most Hong Kong people do - they were thinking about property and making plans to acquire more, even if it was only a space just big enough to house an average-sized car.

In the crazy world of the Hong Kong property market they thought they had spotted a bargain.

The evidence suggests they were right: other parking spaces in the neighbourhood are selling for around £80,000. At one point during the property frenzy, a record £144,000 was paid for a parking-space in another middle-class area.

Talk to practically anyone in Hong Kong and the chances are that they will know the precise price of every square foot of property in their vicinity and most other areas as well. The newspapers may be full of reports about the pending change to Chinese sovereignty but the average person is usually far more interested in scanning the property advertisements.

Prices have been falling, in part because of a government-inspired squeeze on home loans and in part because the market had reached such dizzy heights that the affordability ratio was starting to make no sense at all. It is hard to buy a very modest two-bedroom flat in an outlying area for less than £160,000. Thousands of people recently queued to buy what are considered bargain flats in the biggest of the new towns for more than £400 per square foot: in other words, a tiny 500-square foot flat sold for more than £200,000. Considering that Hong Kong is supposed to be entering a period of deep political uncertainty, the willingness to invest in bricks and mortar might be difficult to fathom. It is the uncertainties, however, that have led so many people to put their faith in property.

Middle-class Hongkongers who have scuttled off to Canada and Australia have returned deeply disillusioned by the falling value of properties bought in haste when they landed overseas. At the other end of the scale, some families of quite modest means gambled on property across the border in China and discovered a nightmare of problems with legal title, building quality and the provision of basic services. The Hong Kong market, on the other hand, looks relatively attractive: prices have risen almost threefold in the past four years and supply shortages are expected to create another boom when the colony reverts to Chinese sovereignty in 1997.

Poorer families club together to secure a toehold in the property market, while richer ones have started to sell more expensive properties so that they can buy smaller ones in Hong Kong and still have money left to invest overseas. Britain is popular with Hong Kong buyers, who see it as a land filled with bargains.

A civil servant explained the obsession with property as part of the immigrant mentality which still prevails. As most people arrived penniless from China, she said, they are anxious to own tangible assets which provide a material expression of their new-found prosperity.

But what if everything goes horribly wrong after 1997? This question seems not to bother most property buyers, who shrug off the memory of 1983, when the last price crash carried a great many people into the bankruptcy courts. Nowadays the banks have better security on their loans, the general level of wealth is higher and there is an unshakeable belief that property is the ultimate investment. Hong Kong's new masters clearly share this belief - Chinese companies have been among the biggest buyers of commercial property in the territory.

Even those most pessimistic about Hong Kong's future wonder whether down- turn in prices is an ideal buying opportunity or a signal to stay out of the market. The gambling instinct is strong and there are few who choose not to take a flutter on a piece of real estate.