To look at the temporary tenants taking up meeting space and conference facilities in the city’s hotels on any given weekend, you would think Hongkongers just couldn’t get enough real estate. Even though finding a flat at home is difficult at best, picking up a revenue generator in the UK, Singapore, Australia, the US or Canada is easy. It’s why developers come here. But new research by YouGov and local investment advisory IP Global suggest otherwise, and that Hongkongers may not really be that interested in the grand scheme of things.
In the Numbers
“Uninterested” isn’t entirely accurate, but IP Global’s new research reveals some curious statistics. Among Hongkongers overall, over three-quarters — 77 percent — hold some form of investment, the most in any major market and well ahead of peers in Singapore and the UK (64 and 30 percent respectively). Notable, however, is the asset breakdown: 67 percent invest in the classics — stocks, shares and bonds. Foreign exchange appeals to 25 percent of investors and commodities get 9 percent of investor attention. Overseas real estate brings up the rear at just 7 percent. London-based market researcher YouGov’s data is drawn from a representative sampling of adults in Hong Kong. Though the SAR is underrepresented in overseas property investment, what does exist is concentrated in the over-55 set, both locals and expatriates.
So why do developers make Hong Kong such a regular sales stop, a practice that predated the movement of money out of Mainland China. “This survey was conducted across a representative sample of the adult population of Hong Kong, so 7 percent is still a considerable number of people in absolute terms,” explains IP Global Director Jonathan Gordon, who commissioned the research. “Across the other markets surveyed, the UAE has the highest proportion of overseas property investors – 13 percent of the population. Singapore is comparable to Hong Kong with 8 percent of the population invested in overseas property.”
Despite the relatively low number of property investors, Hongkongers are big investors overall, for a number of reasons, some of them structural and some cultural. “In Hong Kong the survey found that the most popular form of investment is the stock market, perhaps unsurprising in a city founded on investment and finance,” theorises Gordon. “The culture in Hong Kong is a speculative one, and opening brokerage accounts is easy compared to many other markets. Added to this, Hong Kong’s geopolitical situation, entrepreneurial nature and exposure to foreign markets have helped to encourage a strong culture of investment over generations.”
The biggest hurdle for greater overseas property investment is one that investors anywhere could or would have confronted: knowledge. IPG’s data showed that the biggest obstacles to greater outbound investment are a lack in understanding of foreign law (a factor for 45 percent of investors), markets overall (44 percent) and currency fluctuations (38 percent).
So when Hong Kong investors do drum up the courage or taste for an overseas property investment, Japan (26 percent), Australia (17) and the UK (15) are the most popular destinations, none of which surprised Gordon. Their strong, heavily regulated, transparent markets with generally positive long-term growth are good choices for novice investors or those who are risk-averse.
Strong fundamentals and a weaker Yen have allowed Japan to leapfrog over traditional favourites recently, despite a bump in student housing investments in the UK and increasingly appealing projects in more affordable growth centres like Manchester and Liverpool. While Gordon notes that the UK, London in particular, remains a popular choice, proximity is a major factor. “Our research includes responses from the general public, not just experienced property investors, and so there may be a tendency to focus on areas that are geographically nearby. Japan, in particular Tokyo, is certainly a great target for property investment,” he says. Infrastructure super-projects in the UK help keep it on the radar — like the well-documented Crossrail and Manchester’s new airport. “Properties in key locations in Outer London and Manchester are for example expecting capital growth of 20 to 25 percent in the next four to five years,” finishes Gordon.
Investing in real estate at home, too, is complex to say the least, and often not that lucrative. Yields are low and supply is lower in some sectors. Supply in the typically investable one- to three-bedroom segment is set to go up in the near term, but Gordon doesn’t see government policy having much influence. Other sectors can be prohibitive, such as the non-block luxury sector (also in short supply), “However, in a global metropolis like Hong Kong, a UHNW demographic will always be in place to drive this part of the market, so investors with the capital to invest at such levels can expect to see their investments at least hold value, if not grow steadily. What’s more, investors may always seek the comfort of investing in their local market, and this can outweigh objective logic when choosing where to buy,” notes Gordon.
Ultimately developers wooing further investment from Hong Kong isn’t a bad idea as there’s room to grow, even with many experienced investors in the city. As an asset class, Gordon is confident international property will gain traction, especially as the world enters a “period of volatility across global markets.” Investors here are actively looking to diversify personal portfolios, which is another potential boom to overseas investment.