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HONG KONG: Investment demand for Hong Kong property will slow as a result of the current turmoil on global asset markets, but a mass exodus from the market is not on the cards, say analysts and estate agents.
"Commercial property prices are still considered healthy as the high prices are backed by a rental growth scenario," said Marcos Chan, head of research for property advisory firm Jones Lang LaSalle's Greater Pearl River Delta office.
"Although the current subdued sentiment may affect business expansion plans a little as corporates turn cautious, the low-vacancy environment together with tight future supply will ensure that rents hold relatively firm," Chan said.
His comments came amid continued heavy falls on the world's stock market as investors sold shares in the wake of the credit rating downgrade for the United States and concerns about a double-dip recession. In Hong Kong, the Hang Seng Index has fallen more than 1,615 points in the past two days.
Reacting to the negative sentiment, some wary local property investors had begun offering price discounts of 5% to 10% on homes, agents said, but there were no signs so far of bigger foreign investors seeking to sell either their residential or commercial properties at discounted prices.
On the institutional investment front, Chan said demand for en-bloc acquisitions — which had been running at a high rate so far this year — would likely fall as investors awaited the outcome of the current wave of negative sentiment sweeping markets worldwide.
"As such, this will likely lead to a reduced volume of large-cap deals, even though overall sales volume would not be seriously affected because of foreign investors walking away from the market," he said.
Jones Lang LaSalle's global real estate health monitor — which tracks the performance of commercial property in 11 key cities including London, New York, Paris, Singapore and Shanghai based on vacancy rates, capital gains and yield — ranked Hong Kong second after Frankfurt at the end of the second quarter this year.
The city's grade A office rents recently posted new records, with asking rents at One and Two International Finance Centre above Hong Kong Station, Central, at HK$207 (RM79.58) per square foot.
While uncertainty will have an effect on investor sentiment and demand, residential property remains in demand by owner-occupiers and end-users across the Asia-Pacific market, said Stuart Crow, head of Asia-Pacific capital markets at Jones Lang LaSalle.
"We do envisage some impact on transaction volumes given the global market volatility, although given the underlying strength of the real estate markets this will be short term," Crow said.
Goodwin Gaw, the founder of Gaw Capital, shared this view. "Transaction volumes should thin out as people wait to see what happens around the world," he said.
The negative sentiment could see a fall in the number of large deals, particularly since banks in Hong Kong had begun scaling back large loans intended for property investment in order to minimise their risk exposure, said one investor.
"Banks are very strict in assessing loan applications these days. This will have a direct impact on the investment market once they turn down the tap for credit,' he said.
Edward Farrelly, head of research at property advisory firm CB Richard Ellis (CBRE), said current investor demand was driven largely by the attraction of capital gains. A change in sentiment, regardless of its source, could dampen demand and affect prices.
"However, unless we encounter significant changes in external factors any correction is likely to be moderate," he said.
"While demand is exposed to a possible hike in interest rates, Hong Kong does not suffer from the oversupply which characterised many other markets prior to a severe price correction," Farrelly said.
He noted that it was not only international investors who are attracted to Hong Kong, but also global occupiers.
"This was highlighted in a recent CBRE global survey which pinpointed Hong Kong as the number one destination for international businesses.
"Current events should not change how the market is perceived," he said.
Nick Axford, head of Asia-Pacific at CB Richard Ellis, said it was still too early to say what the wider impact would be from the US ratings downgrade, but it had clearly introduced some short-term volatility into the market.
"One immediate implication is that it has refocused investors' attention on weaknesses that still haven't been ironed out of the US economy," Axford said.
"We have seen in the past that it is precisely at such times that interest in emerging markets comes to the fore. With the strong growth outlook for Asia, Hong Kong is well positioned to take advantage of this.
"Were the situation to worsen considerably, this would undoubtedly have an impact on the market. However, this is not the current baseline scenario," he said. — SCMP
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