As everyone is now aware, the development of the economies of East Asia has been strongly influenced by the thrills and spills, the hopes and fears of the property market. In China, in the 20 years (yes, it really is only 20 years) since the property market was opened up to investment, both long-term and speculative, the sheer amounts of money washing through the property markets in the major cities have been staggering. On the back of pent-up demand caused by high savings rates and little scope for imaginative investment, and boosted by the seemingly unlimited capacity and willingness of the banks to lend money, the mainland market has surged forward to a point where one simply does not know where the boom finishes and bubble begins.

Hong Kong, of course, has enjoyed much more stable circumstances, having been a safe home for investment for far longer, and benefiting from the unique advantage of its geography; prices cannot simply be diluted by urban expansion as they are in many mainland cities. However, these circumstances make property markets rather less flexible than those on the mainland. As in all developed environments, location is everything. Whereas on the mainland, with its lack of traditional urban history, new developments have shot up like mushrooms almost everywhere, and if prices appear too high in one neighborhood the ambitious speculator will simply build another one round the corner. The Hong Kong market has to pay its respects towards the city's past, even if it is quite a recent past.

The associations of the different parts of Hong Kong - the Peak, Lan Kwai Fong, Wan Chai, Tsim Sha Tsui, etc - are well established in the popular consciousness, especially given the peculiar Chinese preference (it seems odd to Europeans, and seems not to be replicated in most other Asian cultures) for shops of the same kind to locate themselves adjacent to one another. Every trader is thus aware of what is the "proper" location for their particular type of business. The mainland, of course, is very different; no doubt in one or two generations each Chinese city will have its clearly defined districts with established associations relating to different parts of the urban economy. But for the moment, for all the efforts of urban planners, patterns of use for commercial property will remain fluid.

In Hong Kong, though, the established arrangements have come under heavy pressure, with the meteoric rise in property rentals over the last 10 years. It has very much a landlord's market, and if owners decide they can impose enormous rental increases which smaller businesses are in no position to pay, then the latter will simply have to make way for someone who can. We can already see this, as potential is discovered down hitherto neglected side-alleys off the main thoroughfares on both sides of Victoria Harbour. There is no clear sign that downward competitive pressure on rents is yet in sight, even if purchase prices may have peaked. Price corrections in the value of retail property do not necessarily lead to rents dropping in the short term. Experience, particularly in Asia, shows that landlords are likely to want to maintain rental levels for as long as there is any hope of finding cash-rich tenants to fill a sufficient number of vacancies.

This, if maintained for too long, may lead to an interesting contretemps; if the small businesses which represent the heart of city life move away from their historic locations, leaving the latter to the super-rich corporations who alone will be able to afford them, this may lead to an extended transformation of parts of the city, such as happens every year or so in the urban flux of a mainland metropolis. And - because "good" locations exist only in the eye of the beholder - it may be that an area which has hitherto been regarded as highly desirable due to its particular atmosphere is suddenly no longer quite so desirable as that atmosphere disperses. Thus it is at least possible, once the bloom comes off the property market, that landlords will begin to make concessions on rents in order to retain tenants which they particularly need to maintain the value of a location, rather than just keeping them sky-high to attract only the richest. Hong Kong in 2014 may turn out to be rather less of a landlord's market.

And, of course, if turbulence in the property markets does indeed lead to a fluidity in Hong Kong's urban landscape, as the "desirability" of locations shifts to align with new patterns in relative pricing, this will be one more way in which the HKSAR, having for so long given the lead to the developing conurbations of the mainland, ends up following the mainland's pattern of development. Real fluidity of urban land use in Hong Kong will always be restricted by the realities of geography; but by mid-century the city may look markedly different. And, as regards the mushrooming cityscapes of the mainland which have become so markedly transformed in a mere 20 years, Heaven alone knows what will have become of them. It is, however, safe to predict that their development and that of Hong Kong are likely to converge.

The author was educated at Oxford University, and served 1986-2006 in the British Diplomatic Service, including nine years in Beijing. He is now a freelance writer, journalist and commentator on political, economic and diplomatic affairs, especially China.

(HK Edition 01/13/2014 page9)