Hong Kong’s property investment volume is expected to rise by up to 15 per cent this year from a 10-year low, as investors cautiously hunt bargains after significant price corrections amid rising interest rates, analysts said.
Hong Kong ranks fifth among the top target cities for cross-border investment this year, returning to the top five after a four-year absence, according to CBRE’s 2023 Asia-Pacific Investor Intentions Survey.
“With the reopening of the border with mainland China and more reasonable valuations, investors once again find Hong Kong attractive,” said Marcos Chan, executive director and head of research at CBRE. The city is among the top five target cities for the first time since 2020.
The survey was conducted between November and December 2022, and polled more than 500 respondents in the region. It was first conducted in 2014. Hong Kong ranked eighth in 2020 in the same survey and then fell out of the top 10 in 2021 before climbing to sixth place last year.
As many economies continue to raise interest rates to tackle inflation, and with growing concerns about a recession in other parts of the world, Asia-Pacific investors have become more cautious.
With the pace of local interest rates rising rapidly, Hong Kong investors have had the weakest buying intention among investors in the region. However, recent price corrections and an upturn in transactions are expected to encourage more investment in this market.
“Overall investment activity is forecast to accelerate in the second half of the year, as the city shows more signs of a solid recovery,” said Reeves Yan, executive director and head of capital markets at CBRE. “Investors are taking a cautious approach due to continuous interest rate hikes, falling equity prices and a potential economic recession.”
Transaction volume in 2022 almost halved year on year, with only 101 big deals being concluded, the lowest level in the last 10 years, according to Colliers. Transactions were negatively impacted last year by the sharp rise in US interest rates, as well as the suppressed rental level of commercial properties caused by the relatively strict quarantine measures in Hong Kong and China.
There were at least six big foreclosure deals, as the rate hikes and a correction in the real estate market in mainland China increased distressed sales in the second half of 2022, according to Colliers. Against this backdrop, premises that offered high yields and distressed sales emerged as hotspots in the fourth quarter.
“We believe distressed sales will remain popular in the first quarter of 2023, as they offer bottom-fishing opportunities for investors, especially the cash-rich local investors and family offices,” said Thomas Chak, co-head of capital markets and investment services at Colliers. “While the retail and hotel sectors will be sought-after, we also expect Chinese buyers’ appetite for local assets to increase if the strong run of the US dollar and Hong Kong dollar comes to an end.”
The disposal of Goldin Financial Global Centre for HK$5.6 billion (US$714.9 million) was the largest distressed sale in 2022, Colliers said.
As the market expects the US Federal Reserve’s rate hike cycle will peak in early 2023, Colliers has forecast that investment volume will pick up momentum in the second half, subject to a full border-reopening schedule.
JLL believes the total transaction volume for investment properties will increase 10 to 15 per cent this year.
“Mainland Chinese investors, especially [those with] state-owned backgrounds, began to come to Hong Kong and look for property investment opportunities after the opening of the borders,” said Oscar Chan, head of capital markets at JLL in Hong Kong. “Singaporean capital is also looking for investment properties in Hong Kong.”
The investors expect rental growth, especially in retail properties, to outweigh the effects of high interest rates, Chan said.
“On the back of the current high-rate environment, investors will generally opt for higher yield assets, although most sellers with strong holding power may resist price reductions, in turn, lengthening transaction times,” said Rosanna Tang, executive director and head of research in Hong Kong at Cushman & Wakefield. “Some landlords looking to diversify portfolios are now more willing to sell their noncore assets, which may lead to some large-sized transactions emerging.”