Walkability, Transport are Key

Walkability, Transport are Key ... to HK Property Prices


I think it should be obvious that Hong Kong has excellent Transport infrastructure, perhaps the best in the world. And this has been one of the Factors that has driven HK Property prices to such exhalted levels.


Other cities with excellent Mass Transit and high walkability, like: Tokyo, London and New York, also have high property values. While in cities like Kuala Lumpur, where walkability and non-car transport seems like a mere afterthought, property values languish at much low levels.


On this thread, I want to examine how HK's walkability and public transport can be maintained, and even enhanced.


BTW, here are some interesting Statistics:


+ Car ownership: There are 471,685 private cars registered in HK - that means only 6.67% of the population owns a car. (source: 2012, from Transport Dept., per HK Magazine, 29 March 2013, pg. 10)


+ Car costs: I don't have the stats for HK, but according to Chuck Marohn, the average cost per annum of running a car in the USA is US$8,000 per annum. (source: StrongTowns.org podcast #130, dated Mar.28, 2013)


Putting these two together, if someone gives up their car in the US, then they have $8,000 pa more to spend on housing. If the figure is the same in HK, then that's HK$62.2K per annum, or HK$5,180 per month - that goes a some way in explaining HK's high property costs. Hong Kong People simply do not need private cars, because of the excellent transport infrastructure, and they can spend more money on their dwellings, instead of burning it up in driving costs.

Walking into the Future


There's an interesting article in this week's HK Magazine: No Clear Path, by Grace Tsoi, where she: "Takes a closer look at why walking in Hong Kong's urban areas (can be) such a nightmare - and what to do about it."


(It is obvious that she has been talking to Paul Zimmerman, CEO of Designing HK, who has been a vocal advocate of better urban design.)


I liked these brief EXCERPTS from her article:

"This car-oriented planning philosophy, so deeply embedded in the minds of the city's transport officials, underpins the problems of raod design in Hong Kong. Traffic engineers seem to believe that their sole mission is to keep roads congestion-free."

. . .

"Our transport and highways department seems to be locked into this 1960s thinking. London, New York, Paris all tehse places have moved on... there has been a dramatic shift in their thinking: How does our city fail? It's for people, not for cars." (per Gavin Coates)

. . .

"If a majority of the population does not own a car, why are drivers given such leeway?"

Some Problems that Ms. Tsoi identifies are:


+ Big gaps between one curb and another (made larger by things like tramway tracks)

+ Streets where pedestrians are treated as inferior to car users

+ Excessive railings, forcing pedestrians to walk greater distances

+ Walkers diverted into walkways and paths by shopping, so that developers can cash in on walk-by traffic (a big problem at Causeway Bay MTR, a place I HATE to visit)

+ Poor signage - so walkers do not know where they are


If the city removes some of these problems, might it help to enhance property values in those areas, sinec they would become more freely walkable, and improve quality of life for pedestrians.

=== ===


Designing Hong Kong is interested in hearing about problems like pedestrian unfriendly areas.


Learn more: http://www.DesigningHongKong.com/missinglinks


You can contact them, or post them here, and I will give them a link to this thread.


(Ed, please give this thread some time to develop into a more interesting thread, which talks about how these matters may influence property values. It is a topic that I find particularly interesting and vital to anyone who invests in property.)

Seems like faulty logic comparing American and Hong Kong housing with regards to transportation costs. Lower transportation costs only means that people have more money to spend on all things. There is no reason that I can think of that removing that one cost should result in anything even close to a 1:1 increase in the price of property - the increase in purchasing ability will be spread across all things people buy (housing, food, education, leisure, health, etc).


Conversely, using that logic, you could argue that low HK salaries are explained by low HK transportation costs - employers in HK need not compensate employees for high transportation costs their American counterparts have. There are far larger determining factors at play than just transportation costs.


If you want to compare prices in the US to HK you only need to consider one thing: land supply controls. Hong Kong property is so expensive because the government strictly controls the supply of land - this is simple economics. Any difference in pricing due to car vs no car would be like a 1000th degree effect. The number one determining factor is supply control with the second and third being mainland speculation / credit bubble (cue Lloyd saying there is no credit bubble).


The best way to determine whether property is overpriced is to look at the rental yield. Rental yields should be comparable with yields earned from other investments of similar risk level. If yields are in the 7% range then things are looking normal. Basic economic understanding also shows that an area's property price growth should track general growth in economic value (take GDP for a lazyman's comp) - of course you need to look at very long term trends to smooth out booms and busts, but if there is a long term disconnect between property prices and economic activity then that should be a sign that property is either too cheap or too expensive.


As for the article, I thought it was silly. HK is the friendliest pedestrian big city I have ever seen. There are air conditioned covered walkways, underground tunnels, massive escalators, and extensive pathways that let pedestrians quickly and comfortably navigate the entire city. The city would not benefit by mixing cars and pedestrians together more, that just leads to slowdowns for everyone and increased danger. No one likes trying to cross roads / wait for lights if they could just be up on a special covered & air conditioned walkway for pedestrians only. The only minor nuisance is if you have to go up and down stairs for an elevated walkway to cross only one intersection, but that rarely happens - usually you are just up on an elevated pathway for the entire distance between point A and B.


As for the fences lining major roads - who cares? Cars are not allowed to drive on sidewalks just as people should not be crossing busy 6-lane roads wherever they please. Maybe the fence is to prevent cars from riding up on the sidewalk as if it were a shoulder (they do this in China).


Articles like that are just the gradual nitpicking that 50 years down the line leads to heavy government control over all aspects of life. People ignore the massive benefits they enjoy every day of their lives and focus only on the extremely minor nuisances like not being able to cross in the middle of Connaught Road.


First a journalist will try to make a name for themselves by identifying a complete non-issue and elevating it to the public's attention through sensationalist journalism and faulty logic. Next they will organize grass roots campaigns to solve this non-issue. Then the government will step in and perform bogus research on this non-issue that costs a hundred million taxpayer dollars. By this time the entire city will be focusing on solving this non-issue as it will be headline news everyday. Next the government will hire a bunch of consultants and contractors to fix this issue. By the time the non-issue is "fixed", we will have spent hundreds of millions of dollars and gotten nothing of real substance as a result. Having "fixed" the issue, the public will focus on the next non-issue a journalist brings up. And of course, the public will generally not utilize the "fix" to the non-issue.


Sorry that I got way off topic, but I just thought the article was lousy.

There is a global market (for most industries) and so salaries of certain people (such as top bankers, or top lawyers) will tend to equalize. When salaries are not able to equalise, then industries will be closed. As an example: Factory jobs have moved away from the US and from HK too, because the work can be done more cheaply in China.


I think people comparing HK property prices with, say, US prices should be adjusting for :


+ Lower transportation costs,

+ Lower income tax rates,

+ Lower property taxes, and

+ Lower interest rates

+ Lower transaction costs in HK


(The government just grabs too much of the wealth in the US, and that hits property prices there, and it could get worse before it gets better.)


Once you do that, the gap is not so big as it appears on the surface.


If the US wants to get its property market moving again, a great way to do that is to change the American living arrangement away from suburban living, so that more of the average American's spendable income can be shifted away from wasteful car-usage, towards wealth-building housing expenditure.


America has much to learn from Hong Kong, but if you try to transfer knowledge, you run straight into American stubbornness, and American arrogance. It is a pity that it works that way, since the old-fashioned car dependent living arrangement is just draining away American wealth.


I agree that HK is mostly pedestrian friendly - especially as compared with the USA. But it can get better. Have you seen the changes that have happened in London over the last decade or so? I think the writer, inspired by Paul Zimmerman's group, wants to see HK learn from the examples of London, and other Western cities.


Even Brooklyn is getting rid of traffic lights, and wants to slow the Cars down:

http://www.streetsblog.org/wp-content/uploads/2012/05/4th_Ave_road_diet.jpg

/source: http://www.streetsblog.org/category/issues-campaigns/traffic-calming/


Taking back the streets from the speeding cars is a very good way to make a city more walkable.


One thing that does bother me about HK and all those shopping malls, is that if you simply want to sit down, you normally have to become a customer of someone. You will not find the free seating (such as many park benches) that you will find in other great cities.

Ignoring politics and bogus modern economic theory, I am not sure why America should want to get its property market going again. Asset prices increasing do not make society more wealthy, simply having the asset itself is what made society wealthy. America already has so much housing that people price it very cheaply - this should be considered a great thing. Only in our completely "bass-ackwards" times do people consider rising prices to be a sign of wealth for a country.


Long run housing prices rising more than the GDP growth rate is just a transfer of wealth from the young to the old. Its like a gatekeeper that forces new entrants to pay prices above what their ancestors did in order to receive the same good (ie new entrants must trade far more goods and services for the same product than their ancestors originally had to do). This did not make the country wealthier but rather just transferred wealth from one group to the other. What would make the country wealthier is to produce more goods and lower the price of all assets overall so that everyone can own more things - that is true wealth.


Anyways, back to the topic of HK property:


I do not think that current US and HK property prices can be compared very well. Manhattan prices vary from the absurd to the reasonable and surrounding borough prices can be really reasonable. For example, Brownstones in Brooklyn that are less than a 10 minute subway ride from Wall Street can be had, fully and beautifully restored, for only $325 USD / sqft. The rental yield on properties like that are 5.5-6.0%.


And NYC generally has the highest property prices in the country. If you go to places like Florida and look at its top cities Miami and Tampa, prices for mansions in top locations are only $150-200 USD / sqft and rental yields are in the low 6% range.


Even the ugliest properties in the furthest areas of New Territories are still 4x Florida mansion prices (per square foot). Of course keep in mind that property in HK does not include any land and is not freehold. High end properties in good areas of HK are also about 4x Brooklyn Brownstone prices. I do not see how any level of adjustment for transportation can even remotely bridge this gap. Lower interest rates in HK will indeed raise property prices above "what they should be" but this is temporary - rates go up and they go down.


With regards to the lower HK taxation - if it were the case that the lower taxes resulted in a 1:1 increase in property prices, it still would not bridge the gap with American property prices. Americans pay ~20% more in income tax than HK'ers do (about double HK'ers tax burden). If HK'ers earn 100, lose 15 to tax, then they have 85 left to spend - Americans would be left with about 65 left to spend. If all of that extra purchasing power went into property then HK property would be 85 / 65 -1 = 30% higher. That still does not get even remotely close to the 400% price difference that currently exists.


I very strongly feel that the primary cause of high property prices in HK is simply due to the land supply controls from the HK government. Since these tight controls will likely be in perpetuity, I suggest using rental yields as an indicator as to whether or not prices today are out of whack with what they "should be."


I also pose the following question: who is actually wealthier in this situation - the HKer who spends X dollars to buy one property or the American who spends the same X dollars to buy four?


As for the lack of public seats in HK - I lived in the mainland for the last three years and almost never saw a public seat to sit in other than at an airport. Hong Kong at least has some seats, but I agree that it is much less than we are used to in the West.

The reasons "America wants to get its property market going again" are:


+ To get the banks out of the hole on many under-secured loans

+ To get mortgage borrowers out of "upside down" loans

+ To inspire more home building, and therefore job creation

+ To create a feel-good-factor which may benefit politicians (incumbents)


I agree with you about the transfer from future owners (mostly young) to present owners (mostly old), and that most of the drop was correcting "irrational exuberance" in home values - here's a link to Prof. Robert Shiller's chart showing a surge/ then a drop in Real Home Prices:


http://3.bp.blogspot.com/-T0tBWaI5kGM/T5xFzbiL5OI/AAAAAAAANC8/5awK5rA6pbI/s1600/ShillerQ42011.jpg


A 5.5-6.0% gross yield on NYC property is not that great, because something like 1/3 of the rental income disappears in real estate taxes.


USA Florida prices would have gone even higher, if they had been near a tax-free earning machine like Hong Kong.


It is the COMBINATION of :

+ Lower income taxes

+ Lower property taxes

+ Lower transport costs

+ Money flooding in from China, seeking the low-taxed "security" in HK

+ The (possible) beginnings of a feeding frenzy


... which has put HK prices to where they are.


London is another highly walkable city, which has safe haven characteristics, and its property prices are high also.


If you under-estimate the attractions of a walkable city, with cheap and efficient transport, you are going to get home prices wrong, and you should be looking for real estate investments which will benefit from improving infrastructure, which benefits walkability, and provides better transport.


Thus, properties like Riva (near Kam Sheung Road) might be interesting, because of the coming Northern Extension of the West Rail - but you could argue that SHKP has already put that factor in the price of Riva - certainly they advertise it.


/see: http://hongkong.asiaxpat.com/forums/hong-kong-property/threads/150707/showflat-reviews-new-properties/


I would prefer to "play" the infrastructure improvement, by purchasing an older property at near $6.500 psf, because it is benefiting from a very short walk to Olympic station, ongoing gentrification of the TKT area, and should also benefit from XRL, the Express Train to China, which I believe will have a Northern exit within walking distance.


People here have been talking about the impact of the MTR extension on Sheung Wan for a long time, and i think that impact is (mostly) already in the price. But the impact of XRL is hardly written about (in English) and the convenience of people coming from China may prove a bigger deal than the convenience of HK people, especially if the cooling measuring holding back China-buying are eased.

I think these sorts of simplistic calculations are wrong, since they miss out on HK's low tax rates, and lower transport costs:


""I was actively involved in the real estate sector here in Hong Kong but recently I’ve liquidated all my positions and have zero exposure to property now in Hong Kong. If you look at the history of asset bubbles, it is clear to me that Hong Kong and China are both in a gigantic property bubble, which is going to end very badly; and, in my view at least, this bubble is even bigger than the bubble we saw in the U.S. If you look at some of the classic metrics, which determine whether property is expensive or cheap or grossly overvalued, if you look at the home affordability ratio, which is the price of a property divided by the annual income, the home affordability in this city—Hong Kong—is off the charts and in China it is even higher. It takes 13.5 years of income to purchase an apartment here in Hong Kong. In some of the big cities in China, the ratio is more like 25 or 30 years of income. If you look at some of the other countries like the U.S. or Australia, it takes maybe 7, 8, or 9 years maximum."


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P. Saxena: http://www.financialsense.com/contributors/puru-saxena/china-hong-kong-real-estate-bubble-end-badly

OTP. Before you start talking about property bubbles in HK and China, talk a look at the Aussie dollar/US dollar exchange rate and the US$/euro exchange rate.

The previous post above quotes Puru Saxena (who talks about property bubbles, not me), and I am referring to some important points that I think he has missed in his analysis