Hong Kong Real Estate: Slowing Down with the Economy

Hong Kong keeps on topping the right lists. The city came in first for the 15th year straight in the 2009 Economic Freedom Index published by the Wall …

Hong Kong keeps on topping the right lists. The city came in first for the 15th year straight in the 2009 Economic Freedom Index published by the Wall Street Journal and the Heritage Foundation. Its overall score was 90 percent, much higher than the world average of 59.5 percent. The report covered 179 countries and scored them on ten individual economic freedom factors. It then averaged the results to come up with a particular country’s overall tally. Hong Kong scored highest, 92.7 percent, in the area of business freedom and its lowest score, 83 percent, was in the area of corruption.   

The Urban Land Institute and PricewaterhouseCoopers (PwC) put the Hong Kong third among the top five Asia Pacific cities to invest in its 2009 report of Emerging Trends in Real Estate in Asia Pacific. The report looked at 20 Asia Pacific cities and interviewed real estate professionals ranging from investors and developers to lenders and brokers.  

While the Hong Kong real estate market has been strong for the past five years, in 2009 demand is expected to slow, according to PwC report. Among unfavorable economic factors that will likely affect the property market are rising cost of living and falling consumer spending. Currently the property market also suffers from low confidence and meager credit supply, according to a report by CB Richard Ellis, a global company that provides an array of real estate services. 

The office sector

Demand in the office sector fell at the end of 2008 bringing down with it rental yields by 18 percent, according a report by Colliers International, a real estate service firm. Due to current uncertainties in the market, a further fall in the office property sector is anticipated. Collier International predicts that overall Grade A office rentals to drop by 26 percent in 2009. Some 57 percent of participants in the PwC interview said 2009 is a time for investors in the office sector to hold on to what they have, while 21 percent advised to buy, and 22 percent thought selling was a good idea.

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The residential sector

Price in the luxury residential sector fell by 22 percent between August 2008 and November 2008, according to a report by Colliers International. The report also predicts that rental yields in this sector to drop by 15 percent and capital values to plummet by 20 percent in 2009.  

The sector is also more affected by the slowdown because a chunk of its target market members work in financial institutions, an area hit the hardest by the current global economic crisis, according to CB Richard Ellis. An exception to the downward trend is the serviced apartments segment that is still showing rental yield growth and low vacancy rates.

Forty nine percent of PwC interview participants suggested 2009 to be the year to hold property in the residential sector, while 27 percent thought buying was a good idea and 24 percent suggested selling was the way to go.

The industrial sector 

Hong Kong’s trading and logistics sector has suffered severely from effects of the global economic slowdown, according to a report by Savills, a global real estate service provider. The government has plans to help small and medium enterprises brave the storm but sales in the industrial real estate market remain sluggish. Rentals in the sector also dropped by 12-15 percent during the fourth quarter of 2008, according to a report by Colliers International. An additional drop of 12 percent to 20 percent by the end of this year is likely, the report predicted.

The retail sector

Just like everything else, consumer spending in Hong Kong is negatively impacted by the financial crisis. However, the retail sector is getting a much needed boost as tourist spending from mainland China continues unabated, according to Savills. Rent in prime locations fell by some 20 percent in the 4th quarter of 2008. So far, there have not been huge rental non-payment issues, according to Colliers International. Retailers and vendors are working together to adjust their expectations in view of current market conditions. While 2009 is expected to bring a drop in rental yields, at about 11 percent, it is not predicted to be as steep as other property sectors.  

It is a sure thing that the Hong Kong property sector is suffering from the effects of the current global economic slow down. However the fundamentals of the property sector remain strong, according to CB Richard Ellis. As soon as positive market conditions return and banks relax their credit policies, the Hong Kong property market is likely to bounce back. 


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