Investment in Hong Kong property set for turnaround in 2024 after hitting 15-year low last year, Colliers says

Only 65 major deals were completed last year as borrowing costs surged to a 22-year high, property consultancy says
Colliers forecast contrasts with CBRE survey that suggests Hong Kong-based investors are the most unlikely to acquire real estate assets in 2024

Hong Kong property

Cheryl Arcibal

Published: 11:00am, 18 Jan 2024

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Investment in Hong Kong property fell by 28 per cent to HK$37 billion (US$4.73 billion) last year, its lowest level since the 2008 financial crisis, but is expected to rise to HK$50 billion in 2024, property consultancy Colliers said.

An anticipated cut in interest rates as well as government initiatives promoting the city as a location for businesses’ headquarters and a hub for new capital will help, according to Colliers.

“While the market expects the US Federal Reserve’s interest rates to stabilise in the next six to nine months, coupled with the [Hong Kong] government’s initiatives [such as] ‘Headquarters Economy’ and the Capital Investment Entrant Scheme [CIES], this is likely to improve investment sentiment and re-establish Hong Kong as an investment destination,” said Thomas Chak, co-head of capital markets and investment services at Colliers Hong Kong.

Last year, only 65 major deals were completed as borrowing costs surged to a 22-year high, with the Hong Kong Monetary Authority (HKMA) hiking interest rates by a cumulative 5.25 per cent since March 2022 to keep the local currency’s peg with the US dollar. The HKMA must act in lockstep with the US Federal Reserve, which is executing an aggressive campaign against red-hot inflation in the world’s largest economy.

Institutional funds accounted for only 9 per cent of the deals last year, while end users contributed about 40 per cent, Colliers said. Data from 2019 to 2022 shows funds made up between 18 per cent and 46 per cent of total investment in Hong Kong.

“Institutional investors, who are rate-sensitive, looked for assets yielding over 4 per cent,” Chak said.

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As part of CIES, investors have the option to invest in commercial and/or industrial property assets in Hong Kong, subject to a cap of HK$10 million. The scheme “will definitely attract investors to diversify their investment portfolios and ultimately boost the transaction volume in the overall commercial market”, Chak said.

The Headquarters Economy initiative, which aims to attract enterprises from outside Hong Kong to set up headquarters here, will potentially benefit the office market in the long run, he added.

Last year, the office segment received 57 per cent of total investment owing to several big deals in the fourth quarter, including the Securities and Futures Commission’s acquisition of 12 floors of Swire Properties’ One Island East in Quarry Bay for HK5.4 billion and mainland Chinese sportswear manufacturer Li Ning’s purchase of a 25-storey mixed office and retail building, Harbour East, in North Point from Henderson Land for HK$2.2 billion.

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The capital value of stratified offices declined by 1 per cent in the last quarter from the preceding three-month period, higher than the 0.7 per cent and 0.4 per cent decreases in the capital values of industrial and high-street retail shops, Colliers said.

“Accommodation assets will continue to benefit from the inflow of talent and mainland Chinese students, while the retail sector outlook remains positive amid a stable tourism recovery, giving a 5 per cent to 8 per cent growth to capital values,” Chak said.

The Colliers forecast stands in contrast with the results of a survey conducted in November and December last year among professional investors by CBRE. The survey suggests that Hong Kong-based investors are the most unlikely to acquire real estate assets this year.

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The net buying intentions of Hong Kong-based professional property investors remained at negative 11 per cent this year, after shrivelling to negative 13 per cent in 2023 from positive 9 per cent in 2022, CBRE said, based on a survey of 510 investors. The survey shows that sentiment in Hong Kong was at the very bottom among 17 major real estate markets across the world, where net buying intention ranged from 7 per cent to 15 per cent, CBRE said.