Hong Kong is facing economic turmoil. The recent protests have taken its toll on the government and economy as a whole. Before the widespread protests, Hong Kong was one of the economic powerhouses. Its robust economy has been envied and emulated by neighbouring countries for being one of the world’s financial centres. It boasts of a highly developed free-market economy, with low taxation, well-established international financial market, and almost free port trade.
However, all of this would soon fade in the background as the current economy is in recession. Pro-democracy protests are driving tourists, shoppers, and investors away.
Economic Status of Hong Kong
Prior to the protests, Hong Kong ranked first in the 2019 Economic Freedom Index, making it the freest in the world with a score of 90.2. Its scores increased for trade freedom, government integrity, and monetary freedom. The current US-China trade war is expected to create a negative impact on fiscal policies. For years, Hong Kong proved to be one of the most resilient economies in the world, and experts believe that the Special Administrative Region will overcome these tribulations to remain a financial hub. For the SAR to achieve this, their government must put in place regulatory efficiency.
Goldman Sachs reports that Hong Kong lost almost US$4 billion of capital to Singapore amid protests. Still, it is small compared with the US dollar and Hong Kong dollar deposits in the city, which totalled almost US$1.5 trillion.
Despite the continuous unrest, Hong Kong remains as the main gateway for foreign investors to make their capital into China. In the data from the Ministry of Commerce of China, as much as 70% of the capitalisation received by the country in foreign direct investments came from Hong Kong. FDI totalled to US$62.9 billion, which represented an 8.6% increase during the same period last year.
According to HKTDC, the region’s economy modestly expanded by 0.5% year-on-year. Overall consumer prices increased by 3.5% in August 2019, compared with rates during the same period last year.
Liveability in Hong Kong
In terms of liveability, Hong Kong edges out Singapore, according to the Economist Intelligence Unit report. Hong Kong takes the 38th spot as Singapore takes the 40th spot. The region did well in health care, education, stability, and infrastructure. However, they flunked culture and environment categories, which ultimately dragged their overall rankings.
Hong Kong is an expensive region to live in, with rental prices pushing up the cost of living in a significant way. In general, Hong Kong pays a good salary for most professionals. Among them are QA engineers, industrial designers, and lawyers.
Property Investments in Hong Kong
Hong Kong property market is among the most expensive in the world. In the latest report by Knight Frank, US$1 million can only buy you a 20 square metre space in Hong Kong. Still, wealthy foreign investors are putting their money in Hong Kong real estate. Upscale residential buildings always attract moneyed buyers. The Peak is a highly preferred residential area for mainland Chinese-based property tycoons. They attribute their status with the prestige of owning a home at the prestigious landmark. High net worth individuals from Japan and Korea prefer to invest in Taikoo Shing.
Investors have different reasons for buying luxurious properties in Hong Kong, but they generally choose from these property hotspots:
- Mid Levels
- Repulse Bay
- Tai Tam
- West Kowloon
- Clear Water Bay
Property Market Trends in Hong Kong
The property market of Hong Kong is now rapidly cooling down. It is noticeable in the decreasing demand and sharp price decelerations. In the last ten years, Hong Kong’s residential property prices increased at a staggering rate of 242%, with notable increases of 28.5%, 21%, and 25.7% in 2009, 2010, and 2012, respectively. This price increases occurred while real incomes did not grow much in years.
In 2018, the residential property price index only increased by 1.62%, a sharp decline from 2017’s 14.74% price growth, as reported by the Ratings and Valuation Department. In the last quarter, property prices declined by 7.96%.
Office spaces in Central Hong Kong, demand declined rapidly, with vacancy reaching a 14-year high in the third quarter. According to Cushman & Wakefield, most of the tenants postponed expansions citing concerns about Hong Kong’s current economic status. Rental rates in Greater Central, including Admiralty, Central, and Sheung Wan, dropped by 3.2%, the biggest since 2012. Currently, office spaces have rental rates of HK$133.7 per square foot.
CHG Recommendation: Foreign Investors Should Hold-Off Property Investments in Hong Kong
Foreign investors should carefully think about making significant property investments in Hong Kong until protests die down. Still, they can use the region as a gateway for making foreign direct investments in Mainland China. While demand for property declined in Hong Kong, there is only a modest decrease in prices, and it does not show that it will have profitable yields for now. The premium they have to pay for properties is too steep. Foreign investors will likely generate more income if they direct their investments in more stable economies in Asia, such as Malaysia, Singapore, and the Philippines.