Record property prices and higher interest rate rises make investors anxious about Hong Kong property market

Nearly half of experts polled by global property consultants Colliers International suggest the economic outlook and likely rising interest rates are the two most important factors for Hong Kong investors faced with making investment decisions for 2018.

The property firm polled the opinions of 35 leading investors and developers who have been actively seeking investment opportunities in Hong Kong and the rest of the region, and noted a decidedly more cautious approach to the coming year in Hong Kong, after months of soaring capital outlays in 2017.

In the next 12 months, officials at Colliers predict yields are likely to drop, and capital costs rise, triggered by likely interest rate rises. It also suggests some investors see Singapore and Shanghai as offering better investment potential than Hong Kong.

“More than 45 per cent of respondents consider the economic outlook and likely rising interest rates as the two most important factors when making investment decisions for 2018,” its survey concludes.

Yields are expected to persist as the US Federal Reserve increases the cost of borrowing and tapers off its balance sheet over the next year.

Antonio Wu, Colliers’ deputy managing director of capital markets and investment services,

said investors reported becoming “more cautious”, and some said they expected to “adopt a more defensive approach, to hedge against any downward price adjustments”.

The tone of Colliers’ report chimes strongly with findings released earlier this month by the Asian Association for Investors in Non-listed Real Estate Vehicles, which found more than 60 per cent of global real estate investors were concerned of possible asset price bubbles forming, with some predicting the rising chance of a “sharp correction” globally.

Hong Kong’s property market has remaining resilient despite increases in US interest rates by the Federal Reserve, said Colliers.

Its latest figures show total Hong Kong property transactions during the first 10 months were worth HK$357 billion (US$45.9 billion), making it the world’s second-largest investment markets behind New York, and by far the largest in Asian Pacific.

September was the 18th consecutive month to hit a new high, according to the Hong Kong government’s Rating and Valuation Department,

Hong Kong’s property prices have increased 430 per cent since 2003, making it the world’s most expensive urban centre among 406 cities monitored, according to the Demographia International Housing Affordability Survey.

Just last week, Mount Nicholson, the luxury housing estate atop Hong Kong’s highest elevation, clinched the crown as the priciest address in the most expensive residential market on earth, selling two flat units for HK$1.16 billion (US$149 million) to a single buyer.

But Daniel Shih, Colliers’ head of research of Hong Kong and South China, added investors see

growth potential in Singapore, for example, which recently rolled back some property-market curbs after a three-year decline in prices early this year, and Shu said higher growth could also result from the limited supply in Shanghai, which could push up prices there.