Investors see limited appeal in Hong Kong property
Stemming the continuing decline of Hong Kong’s real estate market will not be easy, with negative investor sentiment crowding in on the territory despite the declining interest rate trend.
“We’re in a different world now. I don’t see many foreigners or real estate funds investing in Hong Kong real estate, at this point in time,” Arbutus' Timothy Tsui told AsianInvestor.
Arbutus is a multi-family office based in Hong Kong.
Residential property prices have fallen almost 25% from the all-time high in September 2021, with transaction volume continuing to decline, according to research from global commercial real estate specialist CBRE.
The underpinning of the Hong Kong property market by cash-rich mainlanders is now a flawed assumption, said Tsui.
“Even if a property was 30-40% off, who would buy it? If you are expecting the Chinese super-rich to step up, there’s only a certain amount of that kind of capital around.”
Arbutus
Tsui believes Chinese real estate investors are wary after the collapse of Evergrande and other mainland developers.
For the average Hong Kong private banking client with exposure to the sector, “I’m guessing you’d be quite cautious until you got that money back,” said Tsui.
The rental decline in mainland China tier 1 cities is unlikely to moderate given the significant supply-demand imbalance, according to CBRE.
House prices in China remain on a downward spiral, with a glut of unsold properties emphasising the scale of the problem.
A SECTOR IN DECLINE?
With top hotels in Hong Kong only half full and office vacancy rates in the Central business district of 40% not uncommon, Hong Kong appears to have priced itself out.
Local developers including Hongkong Land, Sun Hung Kai and Sino Land have all recently reported a sharp drop in profits.
Businesses that are not tied to Central Hong Kong can find rents in Shenzhen that are now 50% cheaper. Operating costs can also be commensurately lower.
“The rent itself (in south China) is already a huge attraction," said Tsui.
LOCATION CHOICES
The oversupply is not only in Hong Kong, with CBRE reporting a record-high 19% vacancy rate across the Asia Pacific office market in H1 2024.
Brisbane and Seoul are expected to be the main drivers of office rental growth in the region.
Large asset owners are also gaining greater exposure to infrastructure and renewable energy projects in the region, while family investors are seeking out impact investment opportunities, especially in the context of sustainability.
“If we look at Southeast Asia, all the Chinese firms are moving production to Thailand, Vietnam and Indonesia to avoid US tariffs.
"You have this expansion of factories, jobs, production, exports and logistics across the region. So in terms of investment and economic growth, Southeast Asia is going to be leading the pack for the foreseeable future.”
Tsui believes that for Hong Kong real estate to see a revival, “Hong Kong has to reinvent itself. It’s a fundraising centre with a very weak stock market.
"Hong Kong as an international financial centre will not disappear in the short term, but it’s not a very enticing place to raise money."