The View

Amid protest violence and dire warnings for Hong Kong’s economy, mainland property investors provide some hope

Behind the – deservedly – gloomy headlines about the economy, mainlanders remain bullish on Hong Kong. This is especially true of office property around Central, and suggests the city is still crucial to China’s plans

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The Hong Kong skyline as seen from Central on July 25. Photo: Bloomberg

Nicholas Spiro is a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm.

Published: 11:00am, 3 Sep 2019Updated: 11:17am, 3 Sep 2019

As the political unrest in Hong Kong degenerates into further violence, pushing the economy towards a recession, fears are mounting that the crisis will spur capital outflows as investors question the city’s status as Asia’s premier financial hub.

The Hang Seng Index, the main gauge of the world’s fifth-largest stock exchange by market capitalisation, has already fallen 14.5 per cent since early May, one of the world’s worst-performing equity markets.

Yet, not all investors are put off by the city’s tumbling share prices. Traders on the mainland have turned positively bullish. According to data from Bloomberg, Chinese investors have added to their holdings of Hong Kong stocks for 15 straight weeks, lured by cheaper valuations and signs that the market is oversold.

A similar trend is observable in the city’s property sector. Commercial real estate transaction volumes in Hong Kong in the first-half of this year plunged 46 per cent year on year, the sharpest decline in the Asia-Pacific region, data from Real Capital Analytics, a real estate consultancy, show.

The slowdown in investment activity stemmed mainly from the escalation of the trade war and, just as importantly, the deceleration in growth in China.

Yet, while mainland outbound real estate investment continues to fall due to tighter capital controls, Hong Kong’s position as the favoured destination for Chinese property investment has been bolstered by the diminishing appeal of Britain and the US due to the risks associated with Brexit and the trade war.