Published on 04 November 2005 at 03:30 pm
Filed under: Asia:- Hong Kong Property Guides » Hong Kong Property Investment Guide
Hong Kong is an exciting market for property investors right now because the potential for the real estate sector in this Special Administrative Region of China is huge as Hong Kong’s fortunes are expected to rise in line with those of China.
This potential is further intensified by the fact that the development of residential and commercial property in Hong Kong is physically restricted by geographic area, by the fact that demand for new apartment accommodation annually outstrips supply already and because the number of new apartment developments started in recent years is down which will now lead to demand exceeding supply to the tune of an estimated 20,000 units per year for the next four years.
Until 1997 the Hong Kong property market was riding high on the wave of economic prosperity enjoyed by the territory. Prices were out of reach of average purchasers and to own real estate in Hong Kong you really needed to be high net worth or a corporate investor.
But in 1997 Hong Kong was handed back by the British to the Chinese. At that time China was not the exciting emerging economy that it is today, rather it was perceived as a restrictive communist country which could potentially cripple the prospects and future prosperity of Hong Kong. As a result of this fear the property sector in Hong Kong received limited investment that year and prices actually began to fall.
Despite the fact that China kept its promise and remained hands off in terms of Hong Kong’s economy, the Asian financial crisis, a worldwide recession and an outbreak of SARS further compounded the shrinkage of investment into Hong Kong’s real estate sector - so much so that between 1997 and 2004 property prices in Hong Kong fell by two thirds.
By 2004 China’s economic fortunes had dramatically changed particularly as a direct result of the Chinese authorities changing policies to allow for foreign direct investment, and by 2004 China’s economy was second only to the US economy in terms of its size. As Hong Kong has extensive trade and investment relationships with China it too began a sharp period of economic improvement as a direct result of China’s increased economic strength.
Improvements in the fortunes of the property sector in Hong Kong in particular were further boosted because there was a great deal of speculation throughout 2004 that the Hong Kong dollar would be revalued along with China’s currency and subsequently appreciate in value. As a result of this fact bank deposits were overflowing so mortgage rates remained incredibly low and investors flooded the property market hoping to buy into a wave of sharp appreciation.
Unfortunately this anticipation led to nothing when in May 2005 the Hong Kong Monetary Authority changed the way the Hong Kong dollar was pegged so that appreciation could not be enjoyed no matter what the Chinese currency did. A great deal of overseas investment actually left the territory and bank deposits shrank throughout 2005.
Despite this economic blip, real estate expert opinion is unanimous in Hong Kong right now. Analysis points to the fact that the property sector will enjoy growth of between five and twelve percent over the next twelve months and because the number of property developments started in Hong Kong in recent years has fallen dramatically, demand for accommodation to let and buy will begin to exceed supply seriously within a year and lead to sharp property price and rental price increases.
This under supply is predicted to last for at least the next four years during which time property owners will be able to charge increasing rental fees and enjoy maximum asset capital appreciation. Throughout the same period Hong Kong is expected to continue to integrate further with China and to therefore be in the best position possible to benefit economically from China’s booming import and export market.
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