It seems as if we say it every year, but 2023 has been quite a year for Hong Kong property. Despite caution in the market and lingering naysayers, real estate is presenting the kind of opportunity that hasn’t been seen in 15, possibly 20, years.
For anyone in for the long haul, Hong Kong’s market offers the best investment option of all asset classes.
Perhaps more than any other industry, real estate moves in cycles. We are at an inflection point in Hong Kong and, in contrast to recent history, buyers have to ask themselves why they are purchasing property.
Taking advantage of unhealthily skyrocketing prices to flip the asset for a short-term gain is a thing of the past. Given that the right bank deposit will offer 5 per cent interest vs a rental yield of 2 per cent, an argument needs to be made for a property purchase for anyone with enough money for a down payment.
The residential market has fallen, by about 20 per cent since last year, and no one is anticipating prices will start rising any time soon.
The war in Ukraine and fresh conflict in the Middle East do not help to quell jitters. But Hong Kong is still a solid and safe long-term investment, especially for those who plan to live in the property. Here’s why.
The hurdle everyone is talking about is interest rates. In all probability, we are nearing the top of the cycle. A rise of another quarter of a percentage point may be on the horizon but the frequency and intensity of rate increases is slowing, and will keep doing so.
This is where the cyclical nature of real estate reveals itself. After two decades of negative interest rates and some of the lowest real rates in the world, Hong Kong is on an upswing.
Nonetheless, financing in the special administrative region, at 4 per cent, is lower than other major markets – Sydney is currently around 6.5 per cent; London is at 8 per cent. The cautious mortgage loan-to-value ratios of the past few years have kept property ownership in the long term viable, and recently relaxed regulations make buying for end users more feasible.
But what about the cooling measures? In his latest policy address, Chief Executive John Lee Ka-chiu did not roll back the measures from 2010 nearly enough to have an impact on transaction volumes. Stamp duties that discourage foreign buyers remain.
The market is very different from when the cooling measures were implemented, and there are too many other factors now – from high interest rates to China’s slowing growth – to make extra stamp duties useful.
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The ‘hits’ and ‘misses’ of John Lee’s 2023 policy address
The ‘hits’ and ‘misses’ of John Lee’s 2023 policy address
On the other hand, could the days of a 400 per cent price increase in 10 years return? Perhaps, but macroeconomic issues have redefined the property sector and make that unlikely. More concerning is that prices could fall too much and put some owners into negative equity.
But that is an issue for Lee and the Monetary Authority. Meanwhile, all these factors make the time right for residents with long-term plans to buy a property without too much competition from overseas investors.
What about other investments, though? Alternative assets are all the rage, other markets beckon, and Hong Kong is positioning itself to be a major cryptocurrency player. But the recent JPEX debacle has put cryptocurrency on the back burner for many and the equities market remains volatile.
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The cryptocurrency scandal gripping Hong Kong
The cryptocurrency scandal gripping Hong Kong
Meanwhile, complex gearing (debt to equity ratio) requirements make commercial property investments difficult, and there is a glut of new supply poised to come into the market that will negatively affect rents.
Investing in global residential markets is an option, but the knowledge demanded for parsing tax obligations, stamp duties and identifying reputable developers overseas is intense. The proximity to a flat in Hong Kong, one that can be lived in and tracked, makes ownership considerably less complicated.
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High hopes for China’s Greater Bay Area, but integrating 11 cities will pose challenges
High hopes for China’s Greater Bay Area, but integrating 11 cities will pose challenges
Hong Kong is about the future. People and businesses are returning to the city, the Greater Bay Area will be a major growth driver, there is no capital gains tax on property, and mainland residents who qualify for permanent residency in a few years will drive demand. These are positives for Hong Kong.
Yes, the city is in a trough, but it is easy to forget markets worldwide are also struggling. The difference is that Hong Kong’s fundamentals for the long term are strong.
This cycle will end, and buyers who have found something to live in and make even more valuable will be sitting pretty when values start rising again – as they always do.
Victoria Allan is the founder and managing director of real estate agency Habitat Property
