Jan. 5, 2007 — -- The bar for luxury residential real estate in Hong Kong, already one of the most expensive areas in the world, has been raised.
The Peak, at 1,811 feet above sea level, is the highest point on Hong Kong Island and has symbolized prominence and wealth since the 19th century. Formally known as Victoria Peak, it towers above the heart of the city and has spectacular, 360-degree views of all of the surrounding islands. To live there signifies a status level for which captains of industry from around the world are willing to pay top dollar.
Last month, The Peak exceeded its own lavish reputation, with local headlines claiming it is the site of the most expensive residential piece of land in the world. The government land auction of 12 Mount Kellett Road fetched $231 million from Sun Hung Kai Properties -- 134 percent of the opening bid and a projected $5,417 per square foot.
And that's for just the land.
Why the historic high price? It's a simple supply-and-demand equation. Property here, the most sought-after low-density neighborhood in Hong Kong, comes available so infrequently that some of the world's richest line up to buy.
At The Peak, "less than 50 properties will be available in the next two years," according to Buggle Lau, the chief analyst at Midland Holdings, a real estate brokerage company selected by Forbes as one of the best small Asian companies in 2006.
Luxury throughout the world is difficult to compare, but there are interesting ways to track residential riches, according to Liam Bailey, head of residential research at the global property agency Knight Frank.
Bailey is based in London, which happens to be the most expensive city per square foot in the high-end market ($3,051 on average and $5,800 at the very top, for those keeping track). By square foot unit price, Monaco is No. 2, with a high-end average of $2,673. Hong Kong is No. 3 at $2,008 and New York, the highest-ranking U.S. city, is No. 5 at $1,796.
High-end real estate is also tracked by how many square feet you can buy for $1 million. In London, $1 million gets you 328 square feet. In Monaco, it's 374. In Hong Kong, it's 498 and in New York, it's 557.
In Hong Kong, nearly 7 million people live on about 425 square miles of space. With the city's land reserve policy in place, land is a limited and valuable commodity.
In simple terms, the government in Hong Kong controls land availability. Land is listed for sale, and interested applicants submit bids to the government. The right price triggers the government to release the land and auction it off to the highest bidder.
It doesn't happen often. Before the Mount Kellett property, the last government auction for land at The Peak was seven years ago.
I can still remember The Peak from my childhood. A happy playground, it provided our family a chance to escapes the hustle and bustle of the city.
Twenty-some years later, I've moved back to Hong Kong and The Peak still strikes its same peaceful purpose -- it is just as green, with views as stunning as ever.
Time, however, has changed my perspective. Now I notice the flashy sports cars cruising down private roads to houses and infinity pools hidden behind security gates and cameras.
I'm ready to explore the grown-up playground.
"Should I take my shoes off?" I ask, knowing this is common practice when entering people's homes in Asia.
"Yes, thanks," says the real estate agent, a tinge apologetic.
My bare toes are about to grace the floors of 15 Plantation Road, a triplex on The Peak. Though the price of this ground was a mere half that of the plot at Mount Kellett, I am still thankful I just gave myself a pedicure. At $12.6 million for just 4,455 square feet -- this was luxury, Hong Kong-style.
Inside the triplex, the harbor greets us through wide windows on every level -- stealing the limelight from the elegance within. I force myself to pay attention to the detail of the sleek modern kitchen (designed by an architect flown in from Italy), to count the bedrooms (four) and bathrooms (four) and notice the hot tub.
"Is that a hot tub?" I whisper to the real estate agent. Distracted again by the view, I point out the window down toward the Mediterranean-style swimming pool. I'm whispering because it's that really-expensive-museum-like-quiet inside.
The hot tub is in the perfect location, perched high in the corner to offer the optimum angle to view the harbor.
"Hong Kong luxury is a bit different from North America," says Lau. "It's relatively small compared to the states. But in terms of location, you enjoy the breathtaking sea view."
He's referring to the panoramic view of Victoria harbor. The harbor is famous itself as a major center for imports, exports and transportation from Kowloon to Hong Kong Island, and also for its sensational surrounding skyline.
As prices have climbed, the luxury bar has been raised. People in Hong Kong are developing a taste for the finer things in life.
New properties are going up with amenities such as private pools, saunas, movie theaters, clubhouses and tennis courts.
"We didn't have these things 10 years ago," says Xavier Wong, Hong Kong head of research at Knight Frank, which lists three of the four most expensive homes in all of Asia. All three are at The Peak, according to Forbes.com.
While the top-end luxury real estate market in Hong Kong is smashing all-time records, the rest of the market is still rebounding from the Asian financial crisis in 1997 and the effects of the SARS outbreak in 2003. The gap between the two markets is widening.
"The needs and demands of Hong Kong people are upgrading," says Wong.
Developers, such as 12 Mount Kellett's Sun Hung Kai, are responding by raising the levels of luxury. Their latest 22-house property on the market, known as Severn 8, includes a swimming pool, spa, gym and resident clubhouse. It recently sold for over $4,600 per square foot.
The only residence more expensive in all of Hong Kong is a single mansion in Shek O, valued at about $6,000 per square foot. Where is Shek O located? It's a beach town at the southern tip of Hong Kong Island -- scenic but, unlike The Peak, far from convenient to the rest of the city.
There are no restrictions preventing foreigners from buying property in Hong Kong and there are also no advantages for the locals. To call one of these properties home, all you need is the money. "It's the free-est economy in the world." says Lau.
But there is one small technicality per the government. When buying property in Hong Kong, you don't officially own the land -- you're renting it from the government. As of Hong Kong's return to China in 1997, newly granted leases generally last for 50 years. That might seem pretty long, but not compared to the early days, when leases were for terms of 75, 99 or 999 years.
"The buyers come from all over the world," says Lau, listing the likes of top executives, investment bankers with fat bonuses, and investment fund managers.
There are more Chinese buyers than before. Stronger ties with the mainland -- in cities like Beijing, Shanghai, Guangzhou and Shenzhen -- and the success of businesses there have changed the faces of buyers over time.
While many Chinese manufacturers and factory owners have businesses on the mainland and have bought second homes there for investments, most continue to keep their main residence in Hong Kong for the quality of life.
"Hong Kong is still the financial center of China," says Lau.
As for up-and-coming neighborhoods, for those of us who can't afford The Peak, Lau suggests West Kowloon, across the harbor from Hong Kong Island and where the old Kai Tak airport used to be.
The former airport area is all reclamation land that didn't exist before 1997, and buildings no longer have height restrictions there.
"It's very interesting," says Lau, "because for many Hong Kong people, they've never had the experience of looking at the view of Hong Kong Island from the Kowloon side from 30-story buildings."
From the way the market is trending, it looks like that is not the only thing those of us in Hong Kong have to look forward to.