Outbound controls weigh on Hong Kong deals

Mainland China’s tighter oversight of overseas investment is adding uncertainty for Hong Kong buyers.

Hong Kong’s residential property market is facing renewed buyer hesitation as tighter mainland Chinese controls on outbound investment add uncertainty to cross-border capital flows, according to CBRE Hong Kong.

Property transactions fell to 5,768 in August, the lowest level in 18 months, following two consecutive months of decline as buyers resisted higher prices and reassessed purchases.

Hannah Jeong, Executive Director, Head of Valuation & Advisory Services at CBRE Hong Kong, said one factor affecting investment sentiment was a mainland Chinese regulation on outbound investment controls that took effect on 1 July.

“So regulation establishes a more comprehensive supervision regime covering the entire outbound investment life cycle,” Jeong said. “So it also reinforces the scrutiny over cross border capital flow and overseas asset acquisitions.”

Whilst the framework does not specifically restrict purchases in Hong Kong’s residential market, Jeong said it has increased uncertainty amongst mainland buyers, particularly wealthy investors who have traditionally supported the luxury segment.

“The resulting uncertainty creates uncertainties promoting some of the purchasers to delay their acquisition decision,” she said.

Price growth has also contributed to slower activity. Hong Kong residential prices increased almost 7.3% year on year in the first half, prompting some buyers to wait for possible price adjustments before re-entering the market.

Competition from new launches, meanwhile, has not displaced demand from the secondary market. First-hand sales reached roughly 14,200 units year to date, up about 10%, whilst secondary transactions totalled around 35,000 and increased nearly 29.5% year on year.

“We don't really see that the first-hand market is competing with our second-hand market, and also I don't think they are significantly displacing demand for the secondary market,” Jeong said.

However, incentives attached to new developments could still pressure resale sellers as buyers compare available options.

Jeong said developers may need to maintain flexible pricing and financing strategies to keep buyers active, particularly as discounts have eased following stronger market momentum earlier this year.

“Developers are likely to continue their flexible pricing and financing strategy while launching the new products in the market,” she said.

Mortgage packages, cash rebates and stamp duty incentives could also support demand as developers seek to maintain sales momentum amid greater policy uncertainty and increased buyer sensitivity to pricing.