Most Hong Kong-based investors demonstrate a positive investment appetite, despite the challenges in the local investment market. We expect the next 12 months will be a buyers’ market as investors look for discounted prices amid likely longer negotiations to close a deal.
According to Colliers newly published Hong Kong Annual Investor Survey Report 2019, over the next 12 months, 71% and 89% of the investors are looking to deploy capital within and outside of Hong Kong respectively. Within the Greater Bay Area (GBA), Shenzhen, which has been promoted by the Chinese government as a model city, captured the most investment interest (57%), while London, Shanghai and Singapore are the most popular markets for investments further afield.
Investors have exhibited more caution with 73% indicating that they are “unlikely” or “not at all likely” to take on more risk. However, most (57%) are still seeking opportunities with higher returns through a value-add strategy while yields remain low across different sectors in Hong Kong. We recommend CBD strata-title offices, which will likely see discount prices in 2020 yet carry a high upside potential. Investors with value-add strategy can also ride on the resumed Revitalisation 2.0 scheme to pinpoint industrial asset enhancement or redevelopment opportunities.
The Hong Kong residential market stayed firm despite a slower economic outlook amid the recent market turbulence, according to the latest Colliers Q2 2019 research report.
Purchasing demand continued its strong momentum in Q2 2019. According to the Land Registry, the total number of transactions surged 49% QOQ to 20,657 in Q2, the highest number since Q3 2012. Buyers were keen to purchase when prices bottomed out, considering the potential risk of price increases making purchases even harder in the future. Meanwhile, the numbers of primary market transactions increased by 36% QOQ. New developments such as Grand Montara in Tseung Kwan O and Mount Regency Phase II received strong market responses and were overly subscribed in several rounds of sale.
As for the luxury residential market, leasing momentum remained active especially during the period before summer holidays while pay packages for expatriate staff are still on the rise. Meanwhile, the leasing market also witnessed increasing requirements from mainland Chinese professionals, which became a new demand driver supported luxury residential rents to stay firm.
Looking into the second half of 2019, we believe the primary market will continue to drive the purchasing momentum in the Hong Kong residential sector, while it is widely-expected that more new residential projects are going to be launched in the next couple of months. The more dovish tone of the US Federal Reserve to keep the US interest rates low and stable in 2019 should provide another layer of support to counterbalance some of the cautious sentiment brought by the economic and local uncertainties.
The Peak, Mid-levels and Southside lead demand among both local and expatriate families due to their prestigious Hong Kong Island location, their proximity to Central and a strong international school network. However, the increasing supply of residential flats and school campuses in other areas have prompted more tenants to look beyond these traditional luxury districts.
New international school campuses and high new supplies of housing in Kowloon and the New Territories are garnering the attention from professionals and expatriates looking to lease larger flats. We have observed that Tseung Kwan O and Tai Po, which have a total of four new international school campuses opened during 2018/19, have been slowly gaining popularity and are increasingly desirable for young professionals with lower spending power than their more senior colleagues.
According to Colliers’ estimates, the rental spread between Hong Kong Island, Kowloon and the New Territories is wider for larger units. For instance, a three-bedroom apartment on Hong Kong Island could cost 60-80% more than that in the New Territories. With reference to the latest market transactions, with a monthly rent of about HKD40,000 (USD5,130), tenants can choose between a 745 sq ft two-bedroom luxury flat at Bel-Air in Pok Fu Lam (Hong Kong Island) or a 1,144 sq ft three-bedroom luxury flat at Mount Pavilia in Clear Water Bay (New Territories).
Looking ahead to the rest of 2019 and 2020, Tai Po and the Sai Kung District (which includes Tseung Kwan O and LOHAS Park) are planned to have the largest quantity of new residential supply, with 7,513 and 6,578 units, or 18.5% and 16.2% of total supply, respectively. Meanwhile, these areas should also provide a high quantity of large units, with sizes of over 1,076 sq feet (100 sq metres).
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Nigel Smith is the Managing Director of Colliers International, a global real estate company operating in 68 countries.
With over 30 years of real estate experience, Nigel is an expert in Hong Kong’s property market and has delivered outstanding results for many developers. Most recently he worked on 50 Connaught Road Central, a project which achieved the highest rents in the world and the highest capital value per square foot in Hong Kong.