Brandon Donnelly

Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.

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Tag: hong kong

  • What rich people plan to do with their money in 2023

    Each year in March, Knight Frank publishes something called, The Wealth Report, which typically includes things like its Prime International Residential Index (PIRI) and a general overview of what ultra high-net-worth individuals (UHNWIs) are up to with their money.

    (An UHNWI is typically defined as someone with a net worth greater than $30 million. And as of last year, there were nearly 400,000 of them around the world, with Hong Kong being the city with the most.)

    In anticipation of this year’s report, Knight Frank has just published the key findings of an “Attitudes Survey.” This is them talking with and surveying private bankers, wealth advisors and family offices about some of the key themes for 2023.

    Here are a few of my takeaways:

    • Globally, about 1/3 of UHNWI wealth is allocated to primary and secondary homes. This is expected. Generally the richer you become, the more your net worth gets diversified away from your primary residence. It is also worth noting that of this 1/3 allocation, more than a quarter is being held outside of their country of residence. This outside-of-country-of-residence percentage is highest for UHNWIs in the Middle East (41%).
    • The average UHNWI owns 4.2 homes around the world, with UHNWIs in Asia owning the most: an average of five homes. This is the kind of stat that might provide motivation for a foreign buyer ban, but I continue to believe that there are other bigger drivers impacting housing affordability/supply across our global cities.
    • About 15% of UHNWIs said that they want to purchase a residential property this year (2023). This is down from 21% last year. Inline with bullet point number one, the greatest appetite/stated intent is coming from the Middle East. (Related article: The new Gulf sovereign wealth fund boom)
    • Real estate was identified as the top investment opportunity. About 1/3 of UHNWIs want to invest in real estate — either directly or indirectly — in 2023. And the top asset classes are: healthcare, logistics/industrial, office, multi-family rental apartments, and hotels. It is interesting to see office in the top three. A positive sign that it is maybe being viewed as an oversold opportunity.
    • Finally, environmental sustainability is being increasingly considered by UHNWIs when it comes to investment properties: 57% are considering energy source(s), 33% are considering opportunities for refurbishment, and 30% are considering the materials used/the embodied carbon footprint inherent to the asset.

    For the full findings, click here.

  • Upsizing in Hong Kong

    It is well known that Hong Kong has some of the most unaffordable housing in the world and that one response to this has been to build increasingly smaller homes — some with the moniker of “nano apartments.”

    But then earlier this year Beijing decided that these nano apartments are actually too small for people, and so a new rule was created requiring homes in Hong Kong to be no smaller than 280 square feet.

    At the same time, interest rates obviously went up, the price cap on homes that can be bought by a first-time buyer with just 10% down was increased, and people have continued to leave Hong Kong for places that are, I’m guessing, more open and less Chinese.

    The unsurprising result is that home prices are now down some 14% for the year, according to Bloomberg. But the other interesting thing about all of this is that buyers are now shifting toward larger homes:

    Developers were only able to sell 48% of the studio apartments available in the first 11 months this year, while the rate for one-bedroom and two-bedroom apartments stood at 53% and 67% respectively, according to Midland Realty.

    Even with the interest rate hikes that we have seen, what seems to be happening is that people are starting to take advantage of this softer market to buy something bigger. Hong Kong is still Hong Kong, meaning grab whatever space you can find when you can.

  • 70% of Hong Kong’s housing supply is either subsidized or a small unit

    This is an unfortunate distinction:

    Of all the world’s housing crises, Hong Kong’s may be the most formidable. The city of 7.3 million leads the world in housing prices and inequality, with 125,100 millionaires and 1.6 million people living in poverty. Home prices have rocketed by 187% over the last decade. In May, the number of public housing applicants hit 245,000, with an average wait time of 6.1 years — the highest in over two decades. According to lawmaker Scott Leung, a shortage of 30,000 units in the next five years means that the public housing queue will soon stretch to 6.5 years.

    So let’s take a look at overall housing supply (source):

    What this chart tells us is the following:

    • For the five-year period from 2017 to 2021, Hong Kong built about 173,900 housing units. That’s somewhere around 34,780 per year.
    • Of these units, 60,700 were subsidized public rental housing units (~35%) and 25,500 were subsidized sale units (~15%). So overall, about half of Hong Kong’s housing supply over the last five years was some form of subsidized housing. That said, the number of public rental housing units has been declining. It was about 70,800 units between 2007 and 2011.
    • Looking at private residential units during this same five-year period, about 35,200 of them (20% of total supply) can be classified as “small units.” These are units with an area less than 40 square meters and, based on the above chart, they obviously represent a rapidly growing market segment.
    • Adding all of this up, we get to 70% of Hong Kong’s housing supply being either (1) a subsidized unit or (2) a small unit under 40 square meters.

    This is how Hong Kong builds, and it clearly isn’t enough to meet demand.

  • Dismantling the capital of neon

    You probably already know this about Hong Kong:

    Neon signs exploded in popularity in Hong Kong after World War II, when the city’s economy started to take off led by its manufacturing industry. As consumerism grew, neon signboards became the go-to format of advertising for all kinds of businesses ranging from restaurants to mahjong parlors to pawn shops. In an era where shopping mostly took place on the street level, the biggest and brightest signs got the most attention.

    But this component of Hong Kong’s aesthetic is rapidly fading. As recent as 2016, it was estimated that there were some 120,000 outdoor signboards, including neon signs, in the city. Today, thousands of neon signs are being removed each year in an effort to “clean up” the city. The result is that about 90% of the city’s neon has now been removed. (Here is an interesting visual essay from Google showing how the city has changed over the years.)

    However, it is also partially a case obsolescence. Neon is a dying craft now that we have technologies like LED. And so as sad as it may be, it’s hard to imagine a world where Hong Kong ever returns to its former glory as a capital of neon.

    Neon signs exploded in the post-war years, but most of them were illegal and I guess some were dangerous by virtue of there being no real enforced standards. But the British clearly didn’t care. Signs were good for business and good for capitalism. And so they let them proliferate. But then the handover to China happened, and it would seem that the Chinese care a little more about neon signs.

    But I think my favorite part of this story is that the origin of these signs is, of course, informal and utilitarian in nature. It was a case of one person erecting a sign and then a neighbor saying, “hey, your big neon sign is blocking my big neon sign, so I’m now going to make an even bigger and bolder neon sign. Maybe I’ll even hang it in the middle of the street.” The result was a self-organizing system that ended up creating, through no overarching plan whatsoever, a unique visual language for Hong Kong.

    That system is now being systematically erased. But lots of people are working to preserve its various artifacts and to celebrate its cultural legacy. These are all good things. But of course, there are other options. At the end of the day, Hong Kong’s visual language is not disappearing because neon is disappearing. It’s disappearing because we’ve decided that is what should happen.

  • Over 60% of global luxury spending now happens in Asia

    The global luxury goods market is somewhere around US$300 billion if you exclude fancy cars. And in just 4 years, global luxury spending has flipped from over 60% of it being in Europe and the Americas, to now over 60% of it being in Asia — with over 40% of it being in mainland China alone. See above chart from the Financial Times.

    But I think what really happened is that when global travel shutdown in 2020, Chinese buyers just started spending all of their luxury goods money at home instead of flying to Paris for the week. Because if you look at Chinese luxury goods spending in 2018, somewhere around 1/4 of it was done in mainland China, whereas today it’s close to 100%.

    So the Chinese have been moving this market for quite sometime. But now that the consumption has moved entirely home, what does that mean for cities around the world? Hong Kong used to be one of the most important places for luxury consumption in Asia (no sales tax), but that has changed and it probably won’t return. This is for reasons that go far beyond luxury goods.

    But I think we’ll see spending in Europe bounce back along with Asian travel. Because buying a luxury good is about much more than just the good itself. It’s about the experience. It’s about how it makes you feel when you buy it. And it’s about signalling to others who you are as an individual. This may sound vacuous, but we all do it, with or without expensive luxury goods.

    There are also new opportunities emerging by way of NFTs. I am sure that some brands are already doing this, but if I were in charge, I would issue a unique NFT with each luxury goods purchase that records, among other things, where it was purchased. Is a bag purchased on the Champs-Élysées worth more if there is a record of it that is etched in stone permanently? Maybe.

  • Sensible, balanced, affordable, and livable

    I just discovered a new alliance of non-partisan, non-profit resident and ratepayer groups in the Greater Toronto Area that have come together in opposition of what they see as “unregulated overdevelopment and the lack of sensible growth vision for the GTA.” If you’d like to read through their public letter to the Premier of Ontario, Doug Ford, you can do that over here.

    In it you will learn that the Toronto region is vying desperately for the title of the most densely populated place on earth by trying to compete with already established locales like the slums of Mumbai and Monk Kok in Hong Kong. One has to admire ambition.

    But what is not clear to me is what exactly “sensible, balanced, affordable, and livable developments” should look like. Should we quash our low-rise “Neighbourhood” designations (the majority of our land area) and instead blanket the region with mid-rise buildings similar to Paris? This is one option and, by the way, Paris is far denser than Toronto (relevant reading here and here).

    Or should we maintain our low-rise “Neighbourhoods” exactly as they are and simply reduce overall housing supply by limiting height and/or density at our transit stations? Is this the ask? I’m not sure. But this is a good question for city builders: What should sensible, balanced, affordable, and livable development look like? Is the 33-storey building that I live in sensible?

  • The future of parking is a lot less of it — at least here in Toronto

    I was having a conversation this week with a few friends in the industry about the future of parking. We were specifically talking about Toronto, but I would imagine that much of this holds true for many other cities around the world.

    Here in Toronto, it’s not uncommon to see new parking spaces in central locations selling for upwards of $200k. For those that are not in the industry and not seeing the work and immense costs that go into building parking, this often comes as a surprise.

    But as I have said many times before on the blog, parking is often a significant loss leader for new developments. Even at relatively high prices, most developers aren’t covering their costs. So developers naturally aren’t racing out to build more of it. They’re trying to build just what is absolutely necessary for the market.

    Given the strong incentives to build less parking, it’s no surprise that parking ratios continue to decline. But consider some of the other parking headwinds:

    • Parking minimums are (hopefully) set to be removed
    • Push toward watertight undergrounds across the city (higher costs)
    • Tipping fees for disposing of contaminated soil (higher costs)
    • Increasing development charges / levies (higher costs)
    • Introduction of inclusionary zoning (higher costs)
    • Inflationary construction cost environment (again, higher costs)

    There is a lag between changing cost structures and what the end consumer sees and feels. Junction House, for example, is fully tendered from a construction standpoint and so we are building with a kind of historic cost structure that would be impossible to replicate today. When the next project comes around, they’ll have higher costs and will have to price their homes accordingly.

    As rising costs and new policies (like the ones I mention above) begin to work their way through the system, I think it’s fairly obvious that parking ratios will continue to be one of the first things that gets looked at and ultimately chopped down. This will make parking even more scarce in the city and surely far more expensive.

    (Back in 2018, Hong Kong had the record for the most expensive parking spot in the world. I wouldn’t be surprised if it still holds this title.)

    But as I have argued before, I am of the opinion that building around the car is not the way to build big and well-functioning global cities. Many of us recognize that we need to focus on alternative forms of transport — everything from public transit to new micro-mobility solutions. And given where costs are going, I don’t think we’ll have much choice.

    Photo by Sven Mieke on Unsplash

  • Hong Kong needs bigger apartments

    CityLab recently published this article about “why Hong Kong is building apartments the size of parking spaces.” It’s about the city’s “microflats” which are typically in the range of 150 to 300 square feet. Supposedly there about 8,500 of these apartments across Hong Kong and in 2019 (this was apparently peak microflat) they represented about 7% of all new residential construction.

    Hong Kong is one of the densest and most supply constrained real estate markets on the planet. And so there are very good reasons for these affordability pressures and the push toward smaller apartments. The article gets into a number of them. The concern I have is that the article also seems to blame developers for a number of these problems, without a clear understanding of the economics behind new construction.

    It is not enough to simply say that developers need to be less greedy and build bigger apartments. If a 250 sf apartment currently costs $1 million and you think it should be twice as big, then the price is now also going to be somewhere around twice as big. Is the answer more $2 million apartments? Developers trade in space and more space costs more money to build.

    All of this is not to say that housing affordability isn’t a problem worth addressing. It of course is. I am simply saying that there is a cost structure behind every new development that is driving decision making and driving what ultimately gets built. Understanding it can be helpful when looking for solutions. Believe it or not, not all developers are bad. Some actually want to help build beautiful, sustainable, and prosperous cities.

  • Never too small — beautifully designed small spaces

    This is my new favorite YouTube channel. I discovered it last night and it’s called “Never Too Small.” The focus is on beautifully designed small spaces. And all of the videos are meticulously crafted — they have a calming feel to them.

    The first video that I watched was the one above (click here if you can’t see the embed) about Desmond Wong’s 31st floor apartment in Hong Kong. At 52 square meters, it’s actually one of the larger spaces on the channel. But it is perhaps important to keep in mind that this was a 2-bedroom flat before Desmond renovated it.

    Floor plans are an interesting thing (and something I enjoy working through for work) because there are lots of nuances to consider, some of which are entirely local. For example, in this flat you’ll see that the kitchen is off in its own little room and furnished with a window.

    That is common in many of the HK apartments that I have seen, but it is not how we would typically lay things out in a new build of this scale here in Toronto. The kitchen would likely be a galley kitchen adjacent to the living/dining room to create more of an open concept plan.

    I’m looking forward to watching their other episodes. For more about NTS, you can also check out their website. They recently published a book which, from what I can tell, looks equally beautiful.

  • Shinjuku east exit cat — a new trompe-l’œil in Tokyo

    Last month, a giant 4K digital cat was installed on a billboard near Shinjuku station in Tokyo. See above tweet. It was created using a 26 x 62 foot LED display, and the resulting effect is very much a trompe-l’œil. The cat looks like it’s sitting on a ledge that is carved into the side of a building.

    The cat doesn’t have a name. But the New York Times has reported that locals have started to call it “Shinjuku east exit cat” because of where it is situated relative to the station. I am going to assume that this name sounds a little more endearing in Japanese.

    Having spent a fair bit of time in Asia in my twenties — mainly Taipei, Tokyo, and Hong Kong — I’ve always been impressed by how playful Asian cities are with their buildings, billboards, signage, and lighting. It can make us feel overly conservative. A trip to Tokyo can be like a trip to the future.

    I appreciate that most people don’t want their cities to be overrun with advertising, and that’s what billboards are usually for. It can get tacky. I get it. But sometimes it just makes sense to stick a massive 3D cat on the side of your building. It’s fun and it captures people’s attention.