Outside the shoebox

Hong Kong landlords have been among the biggest winners from China’s boom. The combination of low interest rates, mainland Chinese money and an influx of foreign bankers has pushed property prices in some parts of the city to record highs. But, against the odds, Hong Kong’s creative community has expanded, aided at times by a landlord’s worst enemy: superstition.

While the city of 7m has enjoyed the fruits of China’s growth, Hong Kong’s cramped living conditions remain largely unchanged. Many families live in shoebox apartments just 350-400 sq ft in size, while even the roomier two- and three-bedroom properties are rarely much bigger than 800 sq ft.

Meanwhile prices, both to rent and to buy, have soared, returning to levels last seen in the late 1990s, just before the Asian financial crisis. A recent report from Savills rated the city as far and away the world’s most expensive for housing executives from global businesses due to the “weight of money pushing into the city, and physical pressure” on limited land.

Space is always at a premium. In Kwun Tong district, 54,500 people cram into every square kilometre, double the density of Manhattan, according to Hong Kong government statistics.

The spacious properties around Hong Kong island’s breezy hilltops and sunny bays are the focus for high-end buyers. Sales data from Savills show apartments on the Peak selling for about HK$50m ($6.45m), while houses in Repulse Bay have sold for HK$100m-HK$120m in the past month.

But finding somewhere affordable to live and work is now part of the creative process for the new wave of expats: young designers and artists.

Their search has led to places such as Square Street, a narrow lane synonymous with bad luck. In Cantonese, the name evokes images of death, while Man Mo Temple, Hong Kong island’s oldest shrine, wafts incense up the road as locals remember the deceased. And according to ancient Chinese traditions, the street has terrible feng shui, a general malaise made worse by an outbreak of the plague in 1894.

For years, the only businesses here were the coffin shops. Yet now, this street, just minutes from the gleaming towers of Hong Kong’s banking hub, leads to the heart of Sheung Wan, the city’s newly vibrant creative district.

In 2009, David Ericsson, a Swedish watch designer, became one of the first to set up shop, drawn by the appeal of low rent. Starting a business such as his – Void Watches – would have been impossible at home, he says, but in Hong Kong entrepreneurs are valued. “I can walk into a bank here and they will take me seriously. In Sweden, they would just tell me to get a job.”

Others have followed. Design boutiques, art galleries, and coffee houses sit beside old printing shops, Chinese medicine vendors and dusty antique stores. As a result, local landlords are beginning to conquer the tradition of superstition. Prices for a typical new one-bedroom apartment in Sheung Wan have risen 20 per cent in the past two years to around HK$4.5m, according to Centaline, a local agent. The recently renovated flats in trendy Po Hing Mansions start at HK$38,000 per month, while spacious one-bedroom units are for sale at HK$13.3m.

Meanwhile, the manufacturing sector in China, which overtook Germany to become the world’s biggest exporter of goods in 2010, has also attracted foreign creatives.

Tim Stuart’s business cards simply read “Toy Hunter”. His journey from North Carolina began a decade ago, when his toy company closed its factory in Minnesota and moved production to China. After six years of trans-Pacific commuting, he made the move permanent. His unusual 1,800 sq ft loft-style apartment is littered with design samples. “It’s great to be somewhere so upbeat, a tiger economy where people seem inspired, creative and have a lust for knowledge,” he says.

An antiques dealer in the Sheung Wan district

The art industry is where the change is most visible. Soaring sales at the city’s big auction houses have tempted international galleries to make the move. In March, White Cube joined Gagosian and Ben Brown in the city, debuting with a show by Gilbert and George. The Hong Kong art fair, which started four years ago, is now one of the world’s biggest, with visitor numbers more than trebling.

However, Sheung Wan is still home to the smaller outfits. New galleries are still arriving, such as Kumquat, which opened earlier this year with a show from Yayoi Kusama, one of Japan’s best-known artists. Tanya Bennett arrived in Hong Kong five years ago and now works at Sheung Wan’s Cat Street Gallery. She lives in Kennedy Town, the latest outpost for the low-rent expat crowd, just 15 minutes from the centre by bus or tram. “I have this gut feeling of being in the right place at the right time,” she says. “It’s at a tipping point where things are really starting to happen.”

The broader cultural infrastructure is still lacking – the sign for the West Kowloon Cultural District, a mammoth project to build an arts hub on the waterfront, points to little more than empty green fields – but there is much optimism. And these fields have not gone to waste. Last year, 18,000 people spent the weekend at Clockenflap, Hong Kong’s first and only major music festival. Organiser Jay Forster expects 25,000 people this year, up from 2,000 when it started in 2008.

Beneath the banker pads overlooking the city on Victoria Peak, Hong Kong also offers a huge range of living options, vital in a place with the widest income disparity in the developed world, according to a UN study.

Many creative people are already trying to find new homes in the industrial quarters dotted around the city, such as Chai Wan, Ap Lei Chau and Kwun Tong. There, old factories and warehouses – the legacy of a manufacturing industry that has since moved north – provide extra studio or storage space. But nowhere has the critical mass, or the proximity to the city centre, to pose a serious challenge to Sheung Wan.

Many of those new to Hong Kong are also new to Asia. Cedric Delzenne first thought of moving from France when the economic slowdown in Europe started to bite. “Curiosity brought me here,” says the 29-year-old. “I wanted to start something from scratch ... I just needed the idea.”

Two years on, Delzenne runs his own online fashion business, Shopdescreateurs.com, from a communal workspace full of internet startups. He is also part of another wave: the number of French people living in the city has roughly doubled in the past five years to more than 10,000, with many coming to work in the luxury industry.

Since 2001, the number of Australians in the city has jumped almost 70 per cent, while the British contingent has grown by a third to more than 33,000. Meanwhile the number recorded as Chinese but not with a Hong Kong domicile has risen 26 per cent to almost 100,000.

Alex Daye in Moustache, his shop in Sheung Wan

Despite Sheung Wan’s village feel, Hong Kong’s often crass, corporate-style gentrification is beginning to creep, to the dismay of some of the small, independent enterprises. People packing up complain of rents being doubled overnight, with landlords hoping to clear the way for European fashion houses: Agnès B, the French designer label, recently opened two cafés in the area.

But tenants, such as Alex Daye, remain philosophical. He and his partner Ellis co-own Moustache, a menswear boutique and bespoke tailor. Daye also writes a guidebook, now in its third edition, dedicated to a Hong Kong that is “less glitzy, a little scruffy, but bursting at the seams with creativity”. Gentrification is not something he worries about too much, after all “we’re part of it,” he says.

Back on Square Street, watchmaker Ericsson has learnt how bad luck can manifest itself. Three years ago, he could have bought his office space for HK$4m; now he’d have to pay around HK$12m. The fashionable influx has created a “spiral of rent in the neighbourhood,” he says. “Eventually, we’ll probably all have to leave.”

Josh Noble is the FT’s Asia emerging markets editor

The gold rush from the mainland

The influx of mainland Chinese visitors into Hong Kong has certainly been felt in the city. In 2011, 28m of them crossed the border, up from 23m in 2010.

Recent data show retail sales in Hong Kong growing at more than 20 per cent year on year, boosted by Chinese buyers of luxury goods, such as watches and jewellery, which are far more expensive over the border. Long queues outside Chanel and Louis Vuitton are a common sight, while Mandarin is increasingly spoken in shops and restaurants.

The city’s private hospitals have seen a rush of mainland mothers coming to give birth, often spending thousands of US dollars in return for the world-class healthcare and the promise of a residence permit for their child. School places are also under pressure. The incoming chief executive of Hong Kong, Leung Chun-ying, has vowed to take action after an outcry from locals.

The impact has also been felt in the property market. According to data collected from estate agents, mainlanders now account for 11-12 per cent of total property turnover in the city. But in the luxury segment, that figure rises to 25 per cent, according to Andrew Lawrence at Barclays Capital, prompting many Hong Kong developers to market more aggressively on the mainland.

However, he says that the record-low interest rates and general confidence in the Chinese economy have been more important factors in the property gold rush.

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