For six years, real-estate markets have lived in a world defined by easy money, courtesy of the U.S. Federal Reserve’s unprecedented asset purchases. The end of the scheme comes at a challenging time for markets, with the economies of Europe and China slowing. For Hong Kong, despite the government’s many moves to cool an overheated property market, prices have still climbed to historic heights.
We believe the Hong Kong market will remain active in 2015, with buyers competing for value-added properties. Chinese investors are now the biggest group of foreign buyers for property around the globe, and their offshore buying spree is likely to intensify.
Chinese financial institutions are putting down roots in Hong Kong. These banks and insurance companies have strong cash flow and low-cost, virtually unlimited funding. These acquisitions help build their brand while allowing the institutions to manage future occupation costs. They already have extensive domestic real-estate exposure, so offshore investment allows them to diversify their risk. Hong Kong is a natural target, as an international financial market close to home, with its mature legal system and regulatory supervision.
Which property sectors will dominate in 2015? Factoring in the risk of an interest-rate hike, most prospective buyers are seeking higher opportunistic returns, and we believe property yields will start softening. Investors will seek out higher returns through refurbishment and the repositioning of tenants. Some investors will expand their search for opportunities to decentralised areas such as Wong Chuk Hang and Kowloon East. Foreign funds, developers and private investors have expressed interest in both upper-floor retail space in core areas and decentralized neighborhood malls, anticipating greater retail consumption.
Encouraged by the push for industrial revitalization, the office sector is another target. In addition to Chinese buyers, multinational firms and small- to medium-size local enterprises are considering owner-occupier purchases for long-term strategic planning. We expect more institutional capital to arrive from China in the form of insurance, banking and finance.