RCA Insights

Signals on Investment Activity in Hong Kong

By on July 3rd, 2019

A little over a year ago the Hong Kong commercial property market was in record-setting mode. Transaction volume reached an all-time high, boosted by multibillion-dollar deals, and prices in the city-state were increasing at double-digit annual rates according to the RCA CPPI.

By the third quarter of 2018, the breakneck pace of dealmaking – which had been driven by wealthy domestic investors as well as mainland Chinese buyers – began to ebb. Monetary tightening at home and U.S.-China trade frictions took some steam out of the market and investment volume started to fall to more typical levels. Property prices, too, returned to single-digit growth.

Now, after a decline in activity and plateauing prices in the second half of last year, the market may be looking up again. While a full reading of second quarter data will not be finalized for a few more weeks, preliminary Real Capital Analytics data suggest activity is on an upward trend.

1907 Hong Kong shift MAIN-01

Furthermore, looking ahead to the second half of 2019, there are 28 deals totaling $4.7 billion in the pipeline, which is some 70% above the five-year average of pending volumes. The market should also be supported by stable lending conditions as the U.S. Federal Reserve is now more inclined to cut interest rates than raise them – an about-turn from a year ago.

All is not auspicious, however. Despite improving deal volumes, yields are rising. Hong Kong average office yields moved out by 20 basis points in the first quarter and the preliminary figures for the second quarter suggest another 10 basis points of upwards movement. Sentiment may also be hindered by the ongoing mass political protests.

The Hong Kong market seems to be shifting into a new position in its late, mature, cycle. Both buyers and sellers’ expectations have changed and there seems to be willingness to trade at slightly lower prices despite improving investment activity.

The next edition of Asia Pacific Capital Trends will be published August 7, covering investment activity across Asia Pacific’s largest markets. 

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