Should you Invest in Hong Kong’s Property Market during CoViD-19?

Posted in Ask An Estate Agent
Hong Kong property market

Unless you’ve been living under a rock these past 10 months, you’ll know that Hong Kong’s real estate sector has been experiencing its sharpest decline in nearly a decade. Amid the worst economic contraction in the region’s history (8.9 percent in the first quarter), commercial investments have proven particularly vulnerable — hit by the lethal one-two combo of months-long anti-government protests, then the global coronavirus pandemic.

Data released by investment firm CBRE indicates these factors (and the resulting slump in consumer confidence) contributed to one of the worst quarters for retail property transactions since 2009: only 20 deals, roughly amounting to HK$7.5 billion, have been made so far this year.

By contrast, though there remains an air of caution among consumers, experts’ prognosis of the city-wide housing market is steadily improving. To make sense of the government’s quantitative easing policies, the latest price data, and ultimately, whether you should wait longer for the market to bottom out; we phoned up Victoria Allan — an ex-director at Colliers who now manages her own premium realty firm, Habitat Property, here in Hong Kong.

Let’s start with an overview: what sort of shape was Hong Kong’s real estate market in at the end of 2019 versus around the time that the first wave of coronavirus infections hit? What are the most noticeable changes?

VA: Towards the end of 2019, the city’s property market already wasn’t in a great way — given all of the (ongoing) political protests. Those had a significant unsettling effect on the market, pushing prices down across the board by about 10 percent. As for CoViD-19, market sentiment was already becoming negative as early as Christmas 2019 — that’s because it was playing out in conjunction with a wider global downturn brought on by the pandemic.

Given the current position of the housing market, have there been any changes in government policy that have made it easier to purchase residential property?

VA: As a result of the pro-democracy protests, the HKSAR government actually altered the policy for first-time homeowners: enabling them to gain easier access to property valued at under HK$10 million (by reducing the amount they’d have to pay in their deposit). At this time, no further adjustments in policy have been made to take into account the economic impact of CoViD-19. It’ll be interesting to see if the government relaxes these policies. However, having had tight restrictions on lending over the last decade, there’s very little debt in the Hong Kong property market which can help to support price levels.

What have some of the most obvious impacts been on buyers since the property market was hit by Covid-19?

VA: We’re seeing many buyers seize the opportunity to invest — especially where it’s for self-use. Market prices are being discounted by 10-20 percent (as compared to 12 months ago), so it’s actually an opportune moment for those who want to purchase their first property or sell the one they currently own and upgrade. Sellers also need to keep a closer eye on personal liquidity, so it’s easier to negotiate with them for a reasonable price.

Hong Kong property
The sprawling penthouse in Repulse Bay has come down to a price (negotiable) of HK$95 million over the past two months. (Image source: Habitat Property)

In the case of new homeowners, it’s a great time to enter the market with either a small investment or property for self-use. Ditto for listings where the price is below HK$10 million — that’s a huge opportunity to buy at lowered prices whilst being able to finance at a higher level (i.e. up to 90 percent financing for properties priced below HK$8 million; and 80 percent for those below HK$10 million).

Hong Kong property
The Villa Helvetia penthouse includes amenities made possible by the surrounding environment of Repulse Bay – including a terrace, private garden and fibre optic cabling. (Image source: Habitat Property)

Foreign investors are also starting to re-examine the Hong Kong property market, as experts generally see it as a market with more medium-term stability than Europe and the U.S. As the number of CoViD-19 cases increases in those regions, their economies are projected to be worse-hit than Hong Kong.

Continuing in that vein, could you give a brief rundown of the opportunities that investors now have that mightn’t necessarily have been available if they were purchasing pre-CoViD-19?

VA: Absolutely! In addition to the reduction in market prices that has averaged 10-20 percent, another side effect of the public health emergency has been that a more varied range of properties has come up for sale. Even though we’re seeing some evidence that suggests the market hasn’t yet bottomed out, most buyers can be confident that if they buy now they’ll be able to take advantage of some discount.

Which residential districts in Hong Kong do you think best support these findings about the current market?

VA: For the purposes of easy illustration, the most dramatic reductions representing good ‘value’ can be found in high-end areas like Repulse Bay. The median price for a three-room apartment in developments like Ruby Court, for instance, has come down to HK$53 million.

Hong Kong property
Buyers and nascent investors will find the best, most dramatic bargains in non-urban neighbourhoods such as Repulse Bay (pictured) or Stanley.

To wrap up: can we get you to make a top-line prediction about the market’s trajectory over the next 6 to 8 months?

VA: Personally, I think that the market is already starting to stabilise — there’s more confidence locally given that Hong Kong seems to have the total number of CoViD-19 cases under control. However, the region’s borders still haven’t been reopened — which raises the possibility (however remote) of a third wave of cases. Last but not least, we have the reoccurring issue of protests: that’s bound to keep a lid on consumer sentiment and pricing. All told, I think the market could fall another 5-10 percent in 2020 before making a full recovery.

Hong Kong property

Victoria Allan is the founder of Habitat Property, a real estate company specialising in the sale and leasing of luxury property in Hong Kong. Prior to establishing Habitat in 2001, Allan held the position of Commercial Leasing Director at Colliers Jardine. She has over 25 years experience in residential and commercial real estate across a variety of global markets — including Hong Kong, Australia, Canada and the U.S.

Randy Lai