Hong Kong Property Market Reaching Its Peak?
Hong Kong property has always given people the impression of steady profit and no loss. In 2022, are you still as optimistic about the prospects for Hong Kong property?
Property market pulled back slightly
According to the Hong Kong Private Domestic - Price Indices published by the Rating and Valuation Department, the indices by all classes in the third quarter of 2021 was a record quarterly high reported at 397.5, an increase of 4.5 points from 393 in the previous quarter, rising for three consecutive quarters. However, the monthly indices have been at a high of 398 since July, falling to 391.5 (provisional figures) in November.
From Quantitative Easing (QE) to Tapering in the United States, the potential rapid increase of Omicorn, and slowing down of the pace of global integration, the property prices in most countries around the world have peaked in mid-2021. The indices recently published by the Rating and Valuation Department has finally reflected this significant correction. Is the Hong Kong property market reaching its peak and lacking the chance of having capital gain?
Declining international status
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Mori Memorial Foundation of Japan has released the "2021 Global Cities Strength Index". Hong Kong has dropped out of the top 10 most attractive cities in the world for the first time. Hong Kong as one of the international financial centers slipped from 9th place last year to 13th place, mainly due to flight suspensions caused by the pandemic. Hong Kong, Singapore, and Tokyo, which originally have a higher proportion of international visitors than domestic visitors, were all affected. While all cities in the index experienced a significant drop in the number of domestic and foreign visitors, Hong Kong experienced the largest drop of any city surveyed, with an 88% drop in the number of visitors. Apart from the pandemic, the report also pointed out that due to the social instability, the score of economic freedom in Hong Kong also dropped accordingly.
Besides, Hong Kong was removed from the list of economic freedom index by the US Heritage Foundation (its rating was included in Mainland China). From the above two indexes, not only has Hong Kong's international status plummeted, but it is also likely to lose its proud free-market position in the globe, affecting foreign investors' desire to invest in Hong Kong property. There have been rumors of some major international firms relocating their headquarters to Singapore or Tokyo, and some financial institutions have even pulled out of Hong Kong since last year. The loss of international/ financial talents will have an impact on the rental and sale of residential properties in Hong Kong and thus leads to the cooldown of the property market. We believe that the mentioned uncertainties is temporary, however this will discourage some potential overseas investors to invest in Hong Kong in the long term.
Wave of immigration
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The Census and Statistics Department announced that the resident population dropped substantially in last one year. Although there is no reliable way to predict how many people from Hong Kong will move to other countries in the long term, the past figures published from British Home Office had revealed a high number of BNO applications and many Hong Kong migrants to the United Kingdom in 2020-2021. To a certain extent, there will have a substantial capital outflow and impact on the property market. The recent wave of immigration has also taken away the young labor force, consumption power, and capital, and brought about the pressure of property sales. Because of the serious situation of population aging in Hong Kong, this massive young population outflow may cause the economy to sluggish and the property market to lose vitality, resulting in a vicious cycle.
Summary
In the past two decades, Hong Kong property was an attractive and wise choice for investors with its high return. However, the recent uncertainties do bear scrutiny; investors should also take note given the market is divided on the trend of property prices in Hong Kong in the medium to longer term. At the very least, we are not as optimistic about property prices as we once were mainly due to the continuous outflow of population from Hong Kong under the influence of immigration (including related capital outflows).
In the meantime, we cannot ignore Hong Kong's declining role as an international financial center in comparison to other cities, with the recent Mainland economic growth slow down, and other uncertainties may also discourage international investors, resulting in lower demand as these investors may consider investing in properties from other countries with larger appreciation potential. In the short term, we also expect the continued rise in inflation would force the Fed to raise interest rates as early as March. The consensus of the market also seems to have changed from three to even more times in 2022, and the time of balance sheet reduction may also be advanced which will affect the investment and property markets. Although the plan of border reopening between Hong Kong and Mainland China may have positive effects on the Hong Kong property market but we expect the impact is more on the retail and luxury properties.
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