1) 

Cryptocurrency service providers continue expansion course despite “bearish” market 

News

Diginex, an international blockchain and digital asset services platform headquartered in Hong Kong, will lease units 3508-12 at Two International Finance Centre in Central, spanning 7,582 sq ft (704 sq m). The company will relocate from a business centre in Central for upgrading and expansion purposes. (Source: HKET, 12 September 2018)

Research View

The prices for Bitcoin and Ethereum, the two top cryptocurrencies by market capitalisation, have been falling and dropped by 68.1% and 86.3% respectively, since their all-time high in December 2017 and January 2018.1 Despite the volatility of the cryptocurrency market, fintech companies have been expanding in Hong Kong’s office market due to the fast adoption of blockchain technology. Moreover, an increasing number of companies, ranging from start-ups to MNCs, is launching fintech projects to enhance business efficiency and services2. With the fintech industry still at an early stage, we expect the future expansion of these companies to increase office demand and drive office rents in the Central Business District.

1 Source: CoinGecko, 18 September 2018

2 Source: hubbis.com

2) Investors are leveraging on flexible workspace to add value to their portfolios

News

Shanghai-based real estate investment management company Kailong is planning to include a co-working element at all of its eight commercial properties in Hong Kong to increase returns. Since the start of 2017, the company has invested HKD4 billion (USD509.9 million) into eight office properties in Tsim Sha Tsui, Wan Chai and Sheung Wan. Ivan Ho, chief executive at Kailong Hong Kong, said that the company is seeking to upgrade buildings to cater to the rising demand of shared offices by implementing large social spaces for networking and small meeting rooms. The fact that many local and Mainland Chinese developers are eyeing larger property projects in Hong Kong, is providing Kailong with more opportunities to acquire smaller properties in major business districts, he said. After enhancing the asset value, individual floors shall be sold to occupiers and investors who are looking for smaller spaces in these locations. (Source: SCMP, 16 September 2018)

Research View

Fuelled by high office rents, and new demand drivers such as the growing fintech sector, and Hong Kong’s growing millennial workforce – which makes up around one-third of Hong Kong’s total workforce, we expect the footprint of flexible workspace operators to continue to rise in H2 2018. Investors and landlords who welcome flexible workspace in their portfolios should upgrade their properties to attract new operators that are entering Hong Kong.

3) Hong Kong among the world’s top 10 riskiest housing markets

News

Housing market dangers are “especially acute” in Australia, Hong Kong, Canada and Sweden, Oxford Economics said, noting this has historically posed a threat to economic activity. “In all four, valuations are very elevated, there has been a lengthy housing boom, debt levels are high and there is a significant share of floating rate debt,” Adam Slater, lead economist at Oxford Economics, said in a research note. Hong Kong, where real house prices increased by 37% over the past five years, was the most overvalued market in the world, exceeding its long-term average valuation by 103%, according to Oxford Economics. (Source: Bloomberg, 13 September 2018)

Research View

Despite owning the title as least affordable housing market worldwide for many years, Hong Kong’s residential prices continue to rise, as developers offer low financing and incentives to make the high down payments more affordable to potential buyers. However, monthly repayment of mortgages will eventually become a challenge for buyers amid rising interest rates. While Oxford Economics forecasts that Hong Kong’s inflation rate will stay at 2.1% in 2019, the impact of rising interest rates on residential prices should become significant once nominal interest rates reach 2.5% or higher. We believe the real interest rates, which have a negative relationship with property price growth, will switch back to the positive territory in mid-2019.