International Investment: A look at property investment in Hong Kong
Hong Kong has been making world news recently, and not necessarily for all the right reasons.
Protests have continued for months now regarding legislation proposed by Hong Kong Government, leading to all manner of uncertainty regarding both the political and economic state of the country. Tourists have shied away from the country, sending nerves across the financial centre.
In what appears to be a reflection of the current state of the UK economy pre-Brexit, we take a look at how the property market has been affected by the protests, attempting to ascertain buyer confidence in the market.
The current state of property
Something residents are certain of is high property prices. In fact, prices in have grown by as much as 200% over the past decade.
The major reasons for these rocketing house prices are due to a limited housing supply, coupled with large capital inflow from China, resulting in a disparity between first time buyers looking to get on the property ladders and wealthy investors ‘buying up’ the property overseas, angering local residents.
Despite the ongoing instability and protests in the country, prices have hardly budged, demand remains high for property.
Most are unhappy with the current state of the economy. Confidence in the Government, outlook and economy are all at their lowest points for years. The only thing property investors are sure of is that property prices will not drop.
Property firms continue to sell property at a rapid pace, with property firm Wheelock selling 80% of its units in a month, apparently this being below the average rate of sale but ‘still good’. With an average house price now at a staggering $1.2m, housing in Hong Kong is well and truly off the charts, being the most difficult place to purchase property in the world.
More protest to come
In the short term, we will see more uncertainty, with yet another protest scheduled for the 1st October, this marking the 70th anniversary of the founding of the People’s Republic of China.
Yet, the violence is seemingly offering no deterrence to homebuyers. In fact, just recently we have seen hundreds of homebuyers queued at the ICC skyscraper with the hopes of purchasing property in one of the most heavily hit sites in the Mong Kok district. The political environment appears to be shaky, but the property market is just not being affected.
A solid history
Investors remain confident in the property market as, much like in the UK, the property market has proved itself resilient, battling through the turbulent times to see a return for property investors and so buyers are keeping faith.
Although property prices declined by 0.1% in July when the protests were at their highest, prices grew a substantial 10% over the first seven months of the year, making this paltry decline insubstantial.
There is still high demand in the market, with sellers willing to negotiate on house price sale, keeping transaction volumes high. However, forecasts are expecting August and September to see a fall in house prices with the continued uncertainty over the political situation.
What this would suggest however is that, whilst the uncertainty remains, we may see another surge once the situation stabilises. Buyers are still forecasting high long term returns regardless of the short-term outlook being less attractive. The reason for this being this fundamental shortage of supply and the quantity of Chinese investors simply will not go away anytime soon.
The rise of Chinese residents
Chinese residents are moving to Hong Kong at an average rate of 150 people per day, as confirmed by the Hong Kong government releasing this many residential permits. For perspective, with a population of 7.4 million people occupying a space of just 1,100 square kilometres, of which 40 percent is nature reserves, the housing shortage is beginning to truly show its ugly face, with many residents simply unable to afford property, or move into more suitable property.
Tiny living spaces, somewhat resembling cages, are seen lining the streets stacked on top of each other. Frustration is well and truly boiling over in the city, spilling over into the streets in the form of protests with the need for greater democracy. Many are taking things one step further, claiming that living in a jail cell is the easiest way to live in the city.
Over the past decade or so, the Government have made attempts to control the rocketing prices, yet each administration has failed to do so.
A rise in renting
Several property companies expect property prices to flatline over the next year. With the most in demand properties being small to medium sized apartments, demand in the luxury market is seeing a consistent decline in recent years, perhaps due to the simply impossible prices in the market.
Where interest in property remains high, investors are taking a ‘wait and see’ approach in the current market, with many opting to rent in the short term, resulting in a rise in average rents by nearly 5%.
With debt servicing tightening in recent years, regardless of instability in the market, homeowners are expected to continue repayments, avoiding pressure in the market. Ultimately the protests are a short-term affect in the market, prices look likely to continue their dramatic rise over the next decade and beyond.