China reopening won't fix HK property

The past few years have seen Hong Kong incur many unfortunate events, but the real estate industry appears to be on the road to recovery. This can largely be attributed to the Chinese economy’s reopening, providing a massive boost in confidence. The improvement in sentiment is evident when looking at key metrics in both residential and commercial markets ever since Beijing decided to abandon its zero-Covid policy.

Since mid-December, the Centa-City Leading Index has seen a 7.7% rise in secondary home values, reversing the 18.2% drop over the 16 months prior. The retail sector, which was hit particularly hard, saw gross leasing volumes more than double their quarterly levels in 2018 in the first quarter of this year, according to CBRE data. Additionally, office space net take-up was positive for three straight quarters.

Since mid-December, the Centa-City Leading Index, a measure of secondhand home values, has been telling us that more than half of the investment transactions last quarter were in the retail sector, which has seen most of the benefits from the resumed cross-border travel and hotel stays. Tom Gaffney, regional managing director at CBRE in Hong Kong, commented: “Hong Kong was virtually inaccessible in recent years. Now it feels like I’m a tour guide!”

The effects of the mainland-Hong Kong border reopening are clear; there has been a notable surge in property sales in the luxury segment of the primary market, where deals were at HK$19.2 million (US$2.5 million) or more. According to JPMorgan, this accounted for 15 percent of total transactions in January and February, compared to just 6 percent for all of 2020. What’s more, the number of transactions above HK$50 million rose from 21 to 35 in the first month after borders reopened. 

The reopening of international borders has had a positive effect on the hotel market in Hong Kong. Last month, the sale of the Sheraton & Four Points by Sheraton Tung Chung Hotel, located near the airport, represented the first disposal of a complete stake in a top-tier, internationally-branded hotel in Hong Kong since 2015.

Boasting 1,200 rooms and a whopping 3,400 square meters of meeting facilities both inside and out, this hotel – the sale of which was caused by financial difficulties experienced by its Chinese owner Shimao Group Holdings – is the second largest in the city and is expected to draw in bids from both institutional and private investors.

“The institutional-grade hotel market in Hong Kong is tightly held, which makes the sale even more significant,” said Jonathan Law, a vice-president in the Hotels & Hospitality Group at JLL in Hong Kong, which is handling the sale.

“There’s a lack of quality stock available for sale. There are lots of wealthy landlords holding on to their properties,” said C.K. Lau, managing director at Colliers in Hong Kong.

Hong Kong is undeniably the biggest beneficiary of mainland China’s reopening. Yet, its property market continues to climb a wall of worry. Even if these worries have diminished, the wall remains steep.

- Published By Team Hongkong Journalist

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