The ongoing pandemic has impacted every inch of the world differently, but with 2021 presenting many possibilities, what should we expect to see?
Hong Kong has always been and always will be, in a league of its own. The swelling economy has not only caused the city to become the most expensive place to live, but also the most expensive place to purchase property of any kind.
Below we examine the Hong Kong property trends in 2021, with a different focus each month on the headlines that are set to shape the market going forward.
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Demand for Commercial Property Falls
The Hong Kong property market is notoriously expensive, which when combined with an ongoing pandemic and rising unemployment rates, does not offer much opportunity for economic growth. With working from home requirements for the majority of 2020, the demand for commercial property in Hong Kong remains in a downward spiral. In Central’s Grade A office market, the vacancy rate reached 7.3% in Q4 2020 – the highest figure since 2004.
The pandemic onsetted Hong Kong’s worst economic recession to date, giving companies an ultimatum of downsizing their business or jeopardising its financial future. Subsequently, the overarching trend of businesses downsizing their commercial spaces has seen significant amounts of ‘marketable and surrender space’ enter the market, equating to -175,600 sq ft Grade A net absorption.
The notable decline in the commercial property industry has inevitably reduced the expectations for growth over the coming months, with rates having plummeted nearly 40% on 2019 figures. However, reducing expectations of the market simultaneously increased the possibility of the industry outperforming in 2021, especially with the promise of effective Coronavirus vaccines.
Along with a rebound in GDP, forecasts are predicting an ambitious jump in transactions throughout 2021, which will be driven by competitive demand and Hong Kong’s wider economic recovery.
The Hong Kong Stock Market Gains Momentum
The property industry and the stock market – the two pillars of Hong Kong’s economy.
Confidence in the Chinese economy has been in an upward trajectory since Q3 2020, where we saw a 4.9% expansion. While GDP failed to exceed expectations, the economy has been recognised for its ability to recover from the historic deadline we saw at the beginning of 2020, with a momentum that continues to strengthen.
The stock market in Hong Kong throughout February signifies the potential for an economic recovery in 2021, with volumes reaching four times those on London’s main exchange and almost 60% of the New York stock exchange. As technology stocks attracted both Chinese and foreign investors, the average daily turnover up to 16th February grew to around HK$25 billion, as opposed to HK$10 billion in the same period a year ago.
This surge in trading presents many opportunities for Hong Kong’s economy and subsequently, the property market. With there being more movement throughout the stock market, GDP is expected to grow 8.2% this year, encouraging a more lucrative economy and subsequently, a prosperous property industry.
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Out With the Old and in With the New
Hong Kong welcomed the New Year with open arms, hoping that the economic recession would fade along with the Year of the Rat. As the fourth wave of the pandemic has eased across the city, the outlook for the Year of the Ox has become much brighter, with sentiment for the residential market gradually increasing.
While sales registrations for private homes have increased exponentially on December’s figures, the average profit of each transaction has grown 6.1% month on month, averaging 72.4%. With the majority of experts hopeful that this influx is the beginning of an economic recovery, the profits on residential property for February 2021 is expected to reach 97.5%.
The recent success of the stock market is thought to have contributed to this rebound, with more liquid cash circulating throughout the economy, amongst Hong Kong residents.
However, the rising Stamp Duty rates throughout Hong Kong have caused uncertainty surrounding the long-term prosperity of the residential property market. Currently, homeowners selling their property within three years of buying are required to pay additional Stamp Duty tax, but experts suggest that reducing this stipulation to just one year would be advantageous for sustained success. With a focus on optimising both the market and the economy, experts also suggest halving the 30% Stamp Duty tax for foreign buyers.
Are Hongkongers Swapping City Living for Greener Prospects?
While the demand for residential property is slowly increasing, we’re seeing a shift in the locations and type of homes that Hongkongers are choosing. With remote working due to remain for the foreseeable future and numerous lockdowns changing the priorities of residents, the desire to live in Hong Kong Central is deteriorating.
Instead, Hong Kong’s outlying islands are becoming more popular, especially with property that’s, on average, 40% more affordable than Central equivalents. The likes of Lanatau, Tung Chung and Lamma have seen a surge in transactions, with buyers eager to swap out urban congestion for a healthier balance of work and living in greener environments. To be specific, the Islands district experienced a 28.5% surge in the secondary housing market in recent months.
Owen Yau, associated director of Savills comments: “People’s lifestyles, pastimes and even their preferences for where they live have all changed due to the pandemic. There has been a significant increase in inquiries about low-density properties in the New Territories and outlying islands.”
We’re seeing this trend reflected on a global basis, with the UK property market enduring a similar shift in demand. As Coronavirus imposed numerous national lockdowns on Britain, we saw the desire to live in London decline, and move more towards tranquil destinations outside of the capital. A survey conducted by Savills has shown that while location remains the top priority amongst all respondents, regions with access to the countryside dominated, along with more spacious homes.
But the question remains, is this a permanent shift in demand for both London and Hong Kong? Only time will tell.