Abacus | Jammy investors: is Hong Kong property feeling Japan’s doughnut effect?

As Central and Mid-Levels rents and property values start to fall, is commuter belt and rural Hong Kong about to get a significant boost?

Neil Newman likens the situation to the ‘doughnut effect’ that strapped owners of Tokyo properties with negative equity for decades

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Commercial and residential buildings in Hong Kong. Photo: AFP

Published: 7:00am, 12 Oct 2020Updated: 7:11am, 12 Oct 2020

When I heard from a friend of mine who is relocating his hedge fund that office rents in Central Hong Kong were down 25-30 per cent this year, and from another that mid-level rents were tumbling, I started to wonder if we are seeing what is referred to as a “doughnut effect” impacting Hong Kong. A doughnut effect refers to a hollowing out of the city centre as people and businesses move to the outskirts. This can have a long-term effect on property prices.

I have seen this before, but on a much larger scale.

As a 1980s “yuppie”, I was fortunate early in my career to be sent to Tokyo. Over three assignments there, and nearly 40 years in East Asia, I have witnessed a full doughnut effect in Tokyo. First, a mass migration of the population from Tokyo to the surrounding suburbs, with the resulting hollowing-out of the central city areas. Then, after prices had fallen, people moved back into the city ready to do it all again – a cycle that has taken about 30 years.

In Tokyo, this movement of people was driven by a combination of social and economic reasons, and involved a large percentage of the city’s working population.

Going down: people in face masks descend the stairs at the Mid-Levels escalator in Central, Hong Kong. Photo: Nora Tam

THE FLIGHT OF THE DOUGHNUTS

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