Prices for Hong Kong car parks have outperformed the housing market over the last dozen years, amid shrinking supply and a buoyant market ready to bid up real estate themes in the era of ultra low interest rates.
"Strong demand and rising investment interest will continue to boost prices for car parking spaces," said Dorothy Chow, a regional director of valuation advisory services at JLL
Underscoring the heated market, Hong Kong took the No 1 spot globally for car parks last week when a Hong Kong executive paid a record HK$5.18 million for a 188 square foot space at the Upton development in Sai Ying Pun.
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From an average of HK$396,000 in 2005, car park spaces have risen 270 per cent to HK$1.47 million in April, after touching a record of HK$1.51 million in March, according to data provided from JLL.
During the same period, prices for secondary homes rose 256 per cent to 327.4 points, up from 92 in 2005, according to the Rating and Valuation Department's home price index.
Chow attributed the rising prices to a shortage of car parks.
Three government public car parks, the Tsuen Wan Transport Complex Car Park, the Middle Road Multi-storey Car Park in Tsimshatsui and Murray Road Car Park in Central have been closed for redevelopment into commercial and residential projects. Since 2013, the city has lost 1,888 car parking spaces owing to changing land use.
Another factor weighing on supply can be traced to changes of the floor area exemption policy in April 2011. Following the change, car parking spaces need to be placed below ground level in order to get full exemption from gross floor area calculations.
Chow said construction cost for a car park with basis finishing is about HK$1,000 per square foot above ground, but doubles to HK$2,000 per sq ft if underground.
"It will increase development cost. More importantly, there is no requirement in the land lease to build car parking spaces for redevelopment projects. Developers prefer not to provide parking spaces," she said.
For the first five months this year prices for car parking spaces have edged up 12 per cent to an average of HK$1.46 million, she said. A total 3,013 car parking lots have changed hands for a total transaction value of HK$4.3 billion during the period.
Victor Lui, deputy managing director at Sun Hung Kai Properties, said parking spaces are a major concern for luxury home buyers.
"It is common for them to own two cars. That explains the rapid rise in parking lot prices. Investors also see upside potential in the sector," he said.