Hong Kong Property Defies the Gloomy Forecasts

Posted on 31 May, 2021 | By Property852

Around this time last year, the forecasts surrounding the Hong Kong property market was considered gloomy at best. The many Covid-related travel bans, much of the political uncertainty, and the UK's decision to allow in Hong Kong citizens that had a British National Overseas passport were all major obstacles that were expected to reduce the property value in the city by several billions.

That, however, was not the case.

Defying all odds (and not for the first time), the Hong Kong property markets actually began to pick up steam, doubling in value. This was all despite the fact that many Hong Kong apartments for rent had to initially decrease their rental asking prices.

Even in the secondary market, home sales prices are set to reach a 23-year high. In fact, the average home is valued at only 2% under these historic highs.

To put this into perspective, it was predicted that the UK's decision to accept the citizenship of 3 million of Hong Kong's BNO-eligible passport owners would decimate the property market. And while certainly there has been a sizable increase of BNO passport issuance over the last year (310,000), only around half (153,300) of the territory residents are estimated to make the UK their home this year.

This impressive property value is not new or foreign to Hong Kong. Before the pandemic, last year marked the territory as the world's most expensive property market. Is houses were, on average, priced around $1.2 million ($1,987 per square foot). This sat at twice that of London's property market valuations, and provided some of the lowest global rental yields at a 1.8 percentage rate compared to London's 3.8 percentage rate.

Still, the biggest contributing factor to Hong Kong property weathering the many tribulations of this year came by way of many wealthy investors from mainland China. Parking their cash close to home, these investors have continually, over the past decade, helped Hong Kong's home prices continually gain traction, increasing over 200%.

Hong Kong Property

In the early months of this year, mainland Chinese investors increased their purchase of residential property by 40%. This is potentially due to the recent push by Beijing, launching a "wealth management connection" between Hong Kong and the mainland. It is expected that, as this is further pushed, demand in Hong Kong properties will only increase further. Even as the border between mainland China and Hong Kong is still largely shut, many have noted that there is a very interest in Hong Kong's investment.

As Hong Kong apartments for rent continue to rise, many developers have jumped in on the trend. Both Road King Infrastructure, as well as Sun Hung Kai, have already begun increasing their apartment prices, some as high as 11%.

Still, not all is yet sunny skies. Hong Kong developers have suffered low stock market valuations for much of the past year. This has resulted in steep discounts in stock prices, some over 50% of their previous asset value. It has been argued that this is largely due to the political uncertainty as well as the consequent decline of the city-state's tourism due to the pandemic.

Even this, however, has a silver lining. Because profits from mainland China's properties has increased, this has offset much of the empty hotels and weak retail rents throughout Hong Kong. This has given investors exposure to gains from important cities, including Shanghai and Shenzhen. This is all done without much of the heavy debt shared by mainland developers.

As a result of this, Hong Kong property developers are now replete with liquid cash and are in the strongest positions compared to many of their worldwide contemporaries. For example, the total debt to equity percentage for CK Assets sits at 4.8%. These numbers are even lower than before the pandemic! Compared to their mainland peers, Kaisa or Evergrandes, both with a debt to equity percentage between 98% and 153%, this is just one instance of Hong Kong developers being in a considerably stronger position throughout these trying times than ever before.

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