Hongkongers' investment trends

Hong Kong's property market

Hong Kong is a hotbed of investor capital. That’s the easy conclusion to draw given how many hotels are occupied by international developers launching new products on any given weekend. But last year, local investment consultancy IP Global commissioned market research firm YouGov for an investment sentiment survey. The results: Hongkongers were among the least likely of five major markets to invest in overseas property. While that was indeed surprising, more surprising is that for 2017 sentiment for overseas investment has doubled. What’s changed Hong Kong’s collective mind?

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Abandoning ship

In IP Global’s 2016 survey, roughly 6% of Hongkongers expressed an interest in investing in overseas property. For this year there’s been a 100% increase in that number: 13% of an overall 78% of potential investors are considering overseas property. The figures may have changed but the fundamental mentality has not, according to IP global director Jonathan Gordon. “One of the biggest surprises, again, was the number of people looking to invest, full stop. It never ceases to amaze us just how active investors are in this part of the world. They don’t like to sit on cash; they do like to invest, whether it be in the stock market, property or whatever else. Compare that to other parts of the world — somewhere like the UK — and it’s poles apart.”

Of the five markets IP Global surveyed — the others being Singapore, China, the UAE, and the UK — Hong Kong led the pack, with China a close second (75%) and the UK bringing up the rear at just 17%. For property investment, Hong Kong and the UAE tied for first. Currency and commodities remain the most popular assets overall due to their low barriers to entry and ease of management (by phone or laptop).

Another possible reason for the bump in real estate curiosity is the current political landscape. With a question mark in the Chief Executive’s office, a clear message that elections are not forthcoming anytime soon, and bracing unaffordability, the bump in overseas property interest could be taken as an indicator of broad discontent. Hong Kong’s preferred property investment locations, “All offer a fantastic quality of life, good weather and all the rest of it. The fact that you’re buying a hard asset in a country you like, that you may live in one day, that has a good education system, and a good health care system makes those places pretty attractive,” adds Gordon.

Where are we going?

Far and away the most popular destination for Hong Kong real estate capital is Japan. A healthy 30% of local investors expressed an interest in the Land of the Rising Sun, but there’s distinct gap between perception and reality. As Gordon sees it, Japan is popular because of its close proximity; logical or not, “A lot of people don’t want to invest too far away… That peace of mind issue comes into play,” he says. A favourable currency and the fabled Olympic bump are other factors, but key is interest rates. “People are attracted by the incredibly low interest rates. If you’re a resident of Japan you can borrow at less than 1%.” And therein lies the rub. For non-residents Japan is essentially a cash play, which brings interest to a grinding halt. “The reality is that the amount of transactions that happen off the back of that [interest] are much, much lower. Once you start to scratch beneath the surface and see the practicality of actually purchasing there, [you realise] it’s very cash intensive… Once people see that, and understand the difference between the interest rate they’re paying and the yield they’re getting, the interest does subside.”

Hong Kong's property market

Close behind Japan were the usual suspects — Australia and Canada — with the UK coming as a bit of a shock for Gordon. “You’d think that the whole Brexit issue would put people off, and they would then look into other markets. But no, the reality is that in places like Hong Kong and Singapore it’s still popular — more so,” he theorises. Why? “The fundamentals are still sound in the UK, the lack of alternatives, particularly in the domestic market here. Affordability is beyond reach of so many people now. In April US$5 billion of property sales transacted in Hong Kong in the primary market alone. A lot of people just can’t afford that, so they’re looking elsewhere, at safe havens, countries they know, trust and understand, and where there’s not a two-tier system for locals and for everybody else.” Unlike Japan, and increasingly in Australia — whose banks have become moderately protectionist in the wake of over-lending and the massive amounts of inbound Chinese money — financing can be arranged by banks in the UK, bolstering the investment argument.

Ironically, the survey’s final surprise was in the relatively small number of Chinese investors flirting with overseas property. Just 4% of those surveyed expressed an interest, suggesting either the Chinese are happy at home or the tidal wave of cash has barely begun. “That’s a surprising statistic. We read all about the billions and billions of dollars coming out of China, and it’s really the tip of the iceberg,” finishes Gordon. Trophy properties are the order of the day right now (hence the headlines) but that’s changing. “Very few people are investing in a place like Chicago, which we like as a business, but if you speak to a Chinese buyer about Chicago, New York and Shenzhen, it’s ‘Why bother with Chicago?’. People are educating themselves about the opportunities that exist outside these trophy locations. Is there that much money coming out? Yes, I think there is. I don’t think it’s even started yet.”

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