Hong Kong real estate adapts to shifting trends

Amidst mixed performance of Asia Pacific property market, Knight Frank expert cites Hong Kong’s ability to make adjustments and embrace co-living concept.

The Asia Pacific property market has been navigating challenges in 2023, with Hong Kong taking centre stage as it adapts to evolving trends and demands.

Amidst mortgage rule changes and the rise of co-living concepts, industry experts are closely monitoring the market's performance and investor sentiment.

“We are still facing challenges, and also in some of the location-specific markets as well,” Martin Wong, director and head of Research & Consultancy for Greater China at Knight Frank, said in a recent interview with Hong Kong Business magazine.

Discussing improvements in certain sectors of the Asia Pacific property market, Wong said Hong Kong remains particularly cautious amidst various challenges, among them the impact of the high-interest rate environment.

In Hong Kong, the office sector has been grappling with slow growth, given the abundant supply of office spaces throughout the region.

“The office market is not performing that well, in particular, but in contrast, other sectors like retail or the hospitality sectors, they are relatively better performing,” Wong said.

The reopening of economies has spurred these sectors forward, as people have returned to shops and entertainment venues after easing of COVID-19 restrictions.

“Investors are proceeding with caution in light of the high-interest rate environment,” Wong stated, noting that the market’s momentum has been restrained by the associated high borrowing costs.

The sluggish investor movement is likely to persist until the market sees substantial interest rate cuts, he said.

Developers, landlords, and buyers have also felt the impact of this cautious sentiment.

Based on his observation, Wong said: “For some of the investors, they’re still very cautious under the high-interest rate environment, especially those involving large capital injections or high-value transactions.”

For developers, he said the focus has been on clearing inventories accumulated over the past few years, particularly in the residential sector.

Wong noted that developers are striving to drive sales whilst maintaining a balance in selling prices. “Residential sales have been performing quite well, especially for the new sales, as the market is trying to be more aggressive to clear up inventories and to drive more sales,” he said.

Hong Kong’s real estate market, on the other hand, has long struggled to address the demand-supply imbalance, exacerbated by its growing population.

The government has undertaken various planning efforts to establish new development areas in the new territories, aiming to increase housing supply, especially in the public housing segment.

However, these efforts take time to implement, leaving a short-term challenge in managing the imbalance.

To facilitate market liquidity and encourage transactions, the government may consider replacing or removing the stamp duty.

“For foreigners, they still have to pay an additional stamp duty of 30% of the transaction value. So under the current market, I don’t think any foreigners would like to touch on the residential properties because of that stamp duty,” Wong said.

Replacing or removing it is a measure that some experts see as a potential solution to prevent barriers to transactions and entry to the secondary market.

One bright spot on the horizon is the concept of co-living, which has gained traction in the Hong Kong market.

Co-living offers an attractive option for young individuals and families seeking their own spaces in a city with high residential rents and limited land availability.

“Co-living is a good concept for the Hong Kong market, especially if our residential rent is actually quite high compared to other Asia Pacific locations,” said Wong, noting that by sharing facilities and spaces, co-living can help minimise costs and create a more affordable living arrangement.

As Hong Kong continues to grapple with evolving market conditions, experts remain optimistic that the investment environment will improve in 2024, given potential interest rate cuts.

However, the long-term solution lies in the government’s commitment to strategic planning and creating more affordable housing options for its growing population.

The real estate landscape in Hong Kong is ever-changing, and with a careful eye on market dynamics, the city aims to strike a delicate balance between investor confidence and meeting the demands of its populace.