The View | Worst may be over for Hong Kong’s property sector, but a full recovery is impossible without mainland reopening

The end to hotel quarantine could not have come sooner for Hong Kong, where commercial rents have fallen by a third since 2019 and home prices are being hit by rising interest rates

But even with this win, hopes of a recovery are tempered by the fact that little has changed over the border

Reading Time:3 minutes

Commercial buildings in Central on May 17. The sharp fall in grade A office rents – down 30 per cent since their peak in mid-2019 – has finally abated. Photo: Dickson Lee

Published: 9:15am, 27 Sep 2022

For a gauge of sentiment towards Hong Kong, look no further than the Hang Seng Index, which is down 21 per cent since the March 2020 nadir of the sell-off caused by the eruption of the Covid-19 pandemic. By contrast, the FTSE All-World Index, a gauge of stocks in developed and developing economies, is up 28 per cent.

Hong Kong’s strict application of Beijing’s “dynamic zero-Covid” policy cut the city off from the rest of the world as well as from mainland China. The economic and reputational damage to Asia’s financial hub has added to the fallout from a succession of domestic and external shocks over the past several years.

No other major city has been more deserving of an improvement in its fortunes than Hong Kong. The announcement last Friday by Chief Executive John Lee Ka-chiu that mandatory hotel quarantine and pre-boarding PCR tests for inbound travellers would be scrapped was a much-needed shot in the arm.

The significant step towards reopening comes at a critical time for the city’s property industry. Even the resilient residential market is under strain due to this year’s abrupt rise in interest rates. The Centa-City Leading Index, a gauge of secondary home prices, is down 11.1 per cent from its peak in August last year, with more than half the decline occurring since early June.

In the commercial sector, hopes for a recovery in the office and retail markets were dashed when the Omicron outbreak erupted at the start of this year. Yet, the sharp fall in grade A office rents – down 30 per cent since their peak in mid-2019 – has finally abated. In the second quarter of this year, rents fell just 0.3 per cent quarter on quarter, the smallest decline since the second quarter of 2019, data from CBRE shows.

The boost to sentiment from the lifting of hotel quarantine positions Hong Kong as a “reopening play” in Asian real estate and could provide the catalyst for a meaningful recovery. “We know that when restrictions are lifted, markets bounce back, as was the case in Australia and India,” said Kevin Coppel, managing director Asia-Pacific at Knight Frank in Singapore.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x

.css-1m2rp1p{color:#34b8b5;}The View | Worst may be over for Hong Kong’s property sector, but a full recovery is impossible without mainland reopening

The View | Worst may be over for Hong Kong’s property sector, but a full recovery is impossible without mainland reopening