The property market in Vancouver has swung in buyers’ favour over the past year, mainly because of a slew of government measures aimed at deflating a housing bubble that saw prices more than double in the decade through 2016. Photo: Reuters
Opinion
The View
by Nicholas Spiro
The View
by Nicholas Spiro
As protests rock Hong Kong, money may flee to safer and cheaper property markets
For Hong Kong property investors, acute threats to the city’s stability are increasing the appeal of cities like Vancouver and Sydney, where house prices have been brought under control
As Hong Kong’s political crisis enters a dangerous new phase, with the protests erupting into violence, the city’s reputation among investors is taking a severe knock. The territory’s rule of law and fundamental freedoms – crucial advantages that have underpinned Hong Kong’s status as Asia’s premier financial centre – are being eroded, raising the spectre of an exodus of capital and businesses from the city.
In the property market, the unrest coincides with – and indeed is being partly fuelled by – a continued surge in house prices, which are hovering near record highs, cementing Hong Kong’s position as the world’s most overvalued residential real estate market and pushing the city further into the “bubble risk zone”, according to the Global Real Estate Bubble Index published by UBS last September.
For Hong Kong property investors, two factors – valuations likely to remain stretched for the foreseeable future, mainly due to chronic undersupply, and acute threats to the territory’s political and economic stability – should increase the appeal of prime real estate in other leading cities, especially those where Hongkongers have business and family connections.
Already, Hong Kong investors are showing increasing interest in metropolises which are home to large populations and have recently shown sharp declines in home prices. Vancouver, which is not only the most “Asian” city outside Asia – 43 per cent of its residents are of Asian descent – but also ranks third, after Vienna and Zurich, in the latest Quality of Living survey by Mercer, a consultancy, holds particular appeal.
The property market in Canada’s third largest city has swung firmly in buyers’ favour over the past year, mainly because of a slew of government measures aimed at deflating a housing bubble that saw home values more than double in the decade through 2016, outpacing gains in New York and London.
Home values in Vancouver are 9.6 per cent down from their peak in June 2018, and while Beijing’s strict capital controls may have contributed to the slump, the main factor is the steps taken by provincial and municipal governments to curb speculation and tackle the acute problem of affordability.
In a determined effort to cool the property market, the authorities raised a foreign-buyer tax to 20 per cent, introduced a “vacancy tax” on homeowners who left properties empty and increased levies on homes valued above C$3 million (US$2.3 million).
The forceful response – which stands in contrast to much tamer measures adopted in Hong Kong – has had its intended effect, particularly in the luxury segment of the market. According to a report by the Royal Bank of Canada, house prices in Vancouver fell 9.6 per cent year-on-year last month, compared with a 0.3 per cent decline across Canada. RBC notes “Vancouver prices … will take longer to stabilise given the many layers of policy actions currently being deployed to cool the market.”
Another city popular among Asian investors is Sydney, where home values are down 15 per cent from their peak in July 2017.
As is the case in Vancouver, dwindling Chinese investment and tougher regulations have led to the worst housing slump in three decades. Also, Sydney is the world’s third most transparent real estate market, according to Jones Lang LaSalle, a property adviser, and has 11 per cent of its residents claiming Chinese ancestry, which should add to the city’s appeal to Hong Kong investors.
Dwindling Chinese investment and tougher regulations have led to the worst housing slump in Sydney since the late 1980s. Photo: Bloomberg
Prime properties in London, another sought-after destination, are also attracting renewed interest from Hong Kong buyers. Although the risk of Britain leaving the European Union on October 31 without a deal has increased significantly since Boris Johnson became prime minister last week, the violence in Hong Kong makes the divisions over Brexit look tame.
Prices of prime properties in central London are now more than 20 per cent below their 2014 peak, according to data from Savills, another real estate adviser. The sharp fall in the pound in the last two months, moreover, has led to a surge in inquiries from overseas buyers.
Still, if Hong Kong property investors want to park their money in safer locations, they’d better get a move on.
Over the past few months, there have been signs that the prolonged slumps in a number of major property markets are coming to an end. Sydney house prices rose for the first time in two years last month, while sales in Vancouver have stopped deteriorating. In London, home values in the most expensive districts held steady in the second quarter of 2019 for the first time in more than three years, Savills notes.
If Hong Kong’s political crisis escalates further, the territory’s property investors could well emerge as one of the most active sources of foreign capital in some of the world’s top residential real estate markets.
