Forecasts for the Hong Kong property market this time final 12 months had been as gloomy because the view from the Peak overlooking the territory on certainly one of its extra polluted days.
Political uncertainty, journey bans associated to the Covid-19 pandemic and the UK’s resolution to open the door to Hong Kongers holding British Nationwide Abroad passports had been broadly anticipated to knock billions off property valuations.
However the territory’s property market, not for the primary time, has defied the doom-laden predictions.
Whereas rents have dropped, Hong Kong’s April property offers by worth greater than doubled, in accordance with Land Registry knowledge. Within the secondary market, dwelling costs are on observe to hit a 23-year excessive, in accordance with estimates by property company Centaline. Common dwelling costs are simply 2 per cent shy of historic highs.
“Hong Kong is a singular market. There’s fixed demand from the kind of purchaser for whom worth doesn’t matter. Provide has all the time been restricted. None of that has modified,” mentioned Derek Chan, head of analysis at property company Ricacorp Properties.
It had been anticipated that the property market could be affected by a UK resolution to permit a beneficial path to citizenship for the 3m residents of the territory who maintain or are eligible for BNO passports.
Certainly, about 310,000 BNO passports had been issued final 12 months, double the earlier 12 months. Some 153,300 Hong Kong individuals are forecast to settle within the UK this 12 months, in accordance with a British Residence Workplace research. A few of these BNO passport holders should have been lively consumers within the UK.
For Hong Kongers, London should appear comparatively enticing. The territory was the world’s costliest property market final 12 months, with a mean dwelling worth of $1.2m, or $1,987 per sq ft, greater than double that of London. Furthermore, its prime residential property gives one of many lowest rental yields globally, at 1.8 per cent. That compares with the typical in London of three.8 per cent yield on the finish of final 12 months.
But neither of those two components matter a lot to rich mainland Chinese language traders searching for a spot to park their money conveniently near dwelling. Over the previous decade, Hong Kong dwelling costs have gained properly over 200 per cent. Mainland consumers with an eye fixed on previous returns are returning to the territory to fill any gaps locals have left behind.
Residential property purchases in Hong Kong by mainland Chinese language consumers rose 40 per cent within the first two months of this 12 months. A latest push from Beijing to launch a wealth administration connection between the mainland and Hong Kong ought to push demand greater. It’s more likely to have been seen by some mainlanders as Beijing’s stamp of approval on investing in Hong Kong.
“At present charges, housing costs ought to rise by as much as 15 per cent this 12 months,” mentioned Chan. He mentioned it was notable that the demand from mainland Chinese language consumers was there, though the borders remained largely shut between Hong Kong and mainland China due to the pandemic. “When borders reopen, there ought to be a dramatic improve.”
Builders in Hong Kong have been fast to capitalise on this. Having bought out of recent developments, Highway King Infrastructure and Solar Hung Kai have elevated costs of its newest batch of residences by as a lot as 11 per cent.
But in inventory markets, Hong Kong’s builders have been shunned for a lot of the previous 12 months, leaving them considerably undervalued. They commerce at a major low cost to internet asset worth, properly over 50 per cent, being thought to be laden with political dangers and uncovered to a long-lasting drop in tourism within the metropolis state.
On a better look, nonetheless, income from surging lease and property costs of their portfolio of property in mainland China have offset weak retail rents and empty lodges in Hong Kong. That offers traders publicity to positive factors from central business properties in essential cities comparable to Shenzhen and Shanghai, minus the heavy debt load of mainland builders.
Hong Kong’s builders are flush with money and have among the strongest stability sheets throughout world friends. For instance, CK Asset’s internet gearing — complete debt versus complete shareholder fairness — stands at simply 4.8 per cent, even decrease than ranges earlier than the pandemic. That compares with 98 per cent for mainland peer Kaisa and Evergrande’s 153 per cent.
The failure of gloomy forecasting over the previous 12 months has underlined the alternatives for contrarian traders. They need to be aware of Hong Kong builders.