Hong Kong Property Market Enters A Great Stagnation

Hong Kong’s spot marketplace has agelong been a awesome root of wealth. The city’s billionaire ranks are dominated by developers who sewage rich | by acquiring sizable onshore banks that allowed them to negociate onshore costs and boost profit margins. But recently, a tussle complete valuations betwixt those developers and nan government, which is nan largest seller of land, has resulted successful a stalemate that dampens nan city’s economical prospects.

At nan apex of nan marketplace sits nan Hong Kong government, which owns each nan city’s onshore and, successful nan past, has relied connected nan waste of onshore leases for much than 50% of its revenue. It is having trouble uncovering takers for nan 18 parcels of onshore it earmarked for waste this year. The MTR Corp, which is simply a awesome landlord successful summation to operating nan city’s extended obstruction network, received nary bidders for its latest onshore improvement task adjacent nan airport, nan first clip this has happened successful 10 years.

The deals that person taken spot were astatine bargain rates. “This lackluster showing provides yet different chastening parameter of really acold Hong Kong’s finance marketplace has fallen from its heights 4 aliases 5 years ago,” said Benjamin Chow, caput of Asia existent assets investigation astatine MSCI, whose squad tracks acquisitions astir nan region. “The aborted tenders besides exemplify nan widening chasm successful pricing expectations betwixt buyers and sellers, which has plagued not conscionable accepted commercialized sectors for illustration offices and retail, but besides nan onshore income marketplace arsenic well.”

Meanwhile, onshore lease sales, offered by some authorities and backstage players, person fallen to their lowest levels since 2009, according to MSCI. In nan government’s case, Chow said, it is not conscionable owed to nan developers’ deficiency of appetite to bid, but besides nan government’s determination not to waste astatine bids beneath its assessed values.

Of nan 2 onshore sites nan authorities managed to waste this year, 1 was weighted successful September astatine HK$5,392 per quadrate ft successful Kowloon’s Kai Tak area adjacent an MTR station, down from much than 3 times arsenic overmuch for a adjacent tract hardly 4 years ago, astatine HK$17,600. It was nan lowest worth successful Kai Tak since 2014.

The different site, astatine a premier location successful Hong Kong Island’s Kennedy Town, was sold successful July astatine HK$7,071 per quadrate foot, nan lowest worth since 2002 for spot successful nan aforesaid neighborhood, according to information from manufacture consultancy JLL.

A developer who asked not to beryllium named described nan business arsenic a downward spiral caused by a triple whammy, inflicted by nan section currency’s dollar peg, on pinch rising liking rates and a worsening user appetite.

In a statement connected nan government’s onshore lease sales, JLL said that nan caller discounts propose that “developers stay blimpish connected onshore value bidding, considering nan subdued marketplace sentiment and rising building and financing costs.”

Shih Wing-Ching, laminitis and president of Centaline, nan city’s largest residential spot broker, acknowledged that a fewer section spot investors are nether financial duress, specified arsenic nan family of erstwhile billionaire Tang Shing-bor, known arsenic “Uncle Bor,” who passed distant during nan Covid pandemic.

However, Hong Kong mostly does not suffer from nan overbuilt inventory and over-leveraged indebtedness loads that plague nan mainland Chinese market. “Overpricing is nan only problem successful Hong Kong’s spot market; it’s easier to woody with,” he added.

Chow, of MSCI, pointed to nan restraint exercised by nan city’s apical 8 developers successful their onshore acquisitions successful caller years. Their purchases declined to $804 cardinal successful nan first half of this year, aft peaking astatine $13.8 cardinal successful nan first half of 2019.

Another redeeming grace for Hong Kong is nan debased penetration of mainland developers. “Mainland developers’ projects successful Hong Kong person to spell done section agents for sale; we are 1 of nan biggest. Their effect successful Hong Kong is not large because their marketplace stock is very small,” Shih said.