Investors have long sounded warnings about Hong Kong’s perennially rising property prices – and finally it seems the likes of BlackRock and Nuveen are being heeded.

Real estate transaction volumes in the city plunged by around one-third in the year to June 30, with cross-border inflows falling particularly sharply, according to new research* from property services firm Cushman & Wakefield (see figure 1 below).

By contrast, other key Asian cities enjoyed inflows into their property markets in that period.

Perhaps even more ominously for Hong Kong, the drop largely happened before the prevailing anti-China protests started in June.

This must have investors wondering just how much further volumes might fall, as fears of a potential recession rise. After all, Hong Kong housing has been the world’s least affordable for nine straight years, and its office space has at times beaten London to top spot in terms of price.

FIGURE 1: TOP CITIES GLOBALLY BY OVERALL PROPERTY INVESTMENT
(EXCLUDING DEVELOPMENT SITES)
(Click for full view)

Private housing prices have fallen 2.7% since the start of June, according to the Centa-City Leading Index, a tracker of Hong Kong residential property prices compiled by local property agency Centaline. 

And in a worst-case scenario Hong Kong home prices could slump 30%, retail sales by a similar amount and prime office rents by 40%, a report by JP Morgan said last month.

CONTRASTING FORTUNES

The data compiled by Cushman and Real Capital Analytics in the new report certainly paints a stark picture. 

In the year to end-June, overall investment into Hong Kong real estate (excluding development sites) fell to $19.2 billion from $31.1 billion, according to detailed figures provided to AsianInvestor. It was down across all sectors except for hotels. As a result the city slipped to ninth from fifth in the global list by property investment volume.

Hong Kong suffered an even bigger drop in terms of cross-border investment (ex development sites), plunging from second to 12th in the same time frame and losing its position as top Asian city by cross-border property inflows (see figure 2 below). Its cross-border investment volume fell to $4.8 billion from $8.1 billion.


FIGURE 2: TOP CITIES GLOBALLY BY CROSS-BORDER PROPERTY INVESTMENT 
(Click for full view)

The situation looks rather rosier elsewhere in Asia Pacific, including in mainland China.

In the year to June 30, four cities in Asia Pacific attracted more cross-border real estate investment than Hong Kong. Sydney led the way, followed by Shanghai, Seoul and Singapore. All four posted gains over the previous year, with Seoul and Singapore more than doubling their international inflows.

Indeed, globally, Asian cities made the biggest gains in market share of cross-border flows in the reference year, most notably Beijing. The Chinese capital saw inflows into its property market more more than quadruple from $694 million to $3.09 billion, rising 52 places in the ranking in the process.

In this year’s results, there were four Asia-Pacific cities in the top 10 by cross-border investment, compared to just one last year.

POLITICAL TENSIONS

Clearly, some key real estate markets have suffered from political tensions related to issues such as President Donald Trump’s trade war or Brexit, with London a notable example.

“The importance of geopolitics has of course been manifest in the past year, impacting cross-border inflows into the US, UK and Hong Kong, for example, while encouraging a more robust performance in secure, stable markets such as Australia, Singapore and Sweden,” the report said.

Overall global real estate volumes plateaued last year, falling by 0.7% in US dollar terms in the 12 months to June 2019 (excluding development sites).

By region, however, North America posted a 13% gain in activity, while Europe and Asia each saw volumes drop by 12%. Latin America and the Middle East recorded sharper falls, of -38.5% and -65.5%, respectively.

These figures followed an 18.4% increase in global volumes in the previous year, with Asia Pacific leading the way with a 32% rise.

* Winning in growth cities 2019/2020 was published by Cushman yesterday (October 15).