Additionally, many real estate funds have successfully raised capital to invest in Asia, particularly in Hong Kong and mainland China. Some of these funds are eyeing the opportunity to buy assets at a distressed value caused by liquidity issues in China. Real estate funds see better returns on investment from destressed market offerings, and since the Chinese market may suffer from the tightening of liquidity, property owners could offload some assets to cash out.

I do believe the investment market will be easing off at the end of Q1 2019, when both China and the US reach some form of agreement on the trade war and at which point the US should not be raising the interest rate anymore. By then, sellers should be more inclined to lower their asking prices to attract buyers while yields should rise, capital values fall, and the borrowing rate should remain flat. Opening some new opportunities for investment. So, if you’re looking to invest in 2019 (or in the year of the pig), here are my top five picks for asset classes in Hong Kong:

THE INDUSTRIAL SECTOR

I would strongly recommend the industrial sector to any investor, since the underlying value such as land cost is still comparatively low. There are ample opportunities for redevelopment and revitalisation into other uses such as offices, hotels or data centres. With their improved infrastructure I would recommend investors look at districts like Tuen Mun, Tsuen Wan, Cheung Sha Wan, Kwun Tong and Wong Chuk Hang, where there are still plenty of add-value opportunities available.

There are small-scale investors considering buying industrial assets to convert into storage facilities. This seems to be a good viable option, since residential flats are only getting smaller and smaller, so normal households might need space for storage.

THE OFFICE SECTOR

This sector is always at the top of my list, since demand is always higher than supply. The office market is always lacking enbloc investment opportunities, especially on the Hong Kong Island, where Grade A strata title supply is very limited. The demand for offices for investment should remain strong despite the fact that rents in Central have peaked. Still, high-quality office assets are often not for sale, hence there is always demand for office investments.

In terms of locations, I like Wanchai, although there aren’t many Grade A offices available, the future Central-Shatin MTR Line should be changing the district’s landscape as a new office destination. The three government buildings: Revenue Tower, Immigration Tower and District Court will be converted into convention facilities and Grade A office buildings. Such moves will stimulate the demand for Grade A offices especially when the vacancy in Central is less than 2%. I believe the capital value of Wanchai offices will rise further as a result of the new Central-Shatin MTR line and the new Grade A office supply.

I always feel that the office sector is the most resilient, even if the market does turn. Hence I quite like this sector as you can play both offense and defence.

NEIGHBOURHOOD RETAIL MALLS

I like neighbourhood retail malls, I believe there is vast potential in changing the tenant mix and upgrading the assets to improve rents. Link Reit has successfully sold two batches of retail malls to real estate funds in 2017 and 2018, to be refreshed and renewed to improve retail sales.

Most shopping malls in Hong Kong can successfully increase rents as the number of visitors from China continues to grow. Visitors from Shenzhen and Guangzhou have been rising in the last couple of years, and with the opening of the XRL and the Hong Kong-Zhuhai-Macau bridge, the numbers have increased at a faster rate. Still, high street retail continues to suffer from a decline in retail sales for luxury goods, a situation that we’ll see continuing for a while.

THE HOTEL SECTOR

Fourthly, I’d recommend looking into the hotel sector, particularly three-star or budget hotels. After the recent opening of the XRL and the Hong Kong-Zhuhai-Macau bridge, the demand for these types of accommodation increased, stimulating investment demand. We are seeing many of our clients looking and investing into existing hotels or office buildings that could be converted into guest houses or hotels, particularly in the Jordan and Mongkok districts.

Another interesting location is Causeway Bay, where two existing hotels are being considered for redevelopment into offices. If the redevelopment plans go ahead around 800 rooms will be taken out of the market, increasing demand for hotel rooms in Causeway Bay and boosting room rates in Wan Chai and Causeway Bay.

LAND SALES

Last but not least, recent land sales indicate that land values have adjusted downward by about 10-15%, yet the demand for residential land remains high. The Hong Kong Government intends to convert some of the land zones from private housing use to public or subsidized housing, squeezing the supply of land for private housing and causing the capital value to appreciate over time. I do believe that the collective sales market should provide some good opportunities for developers to acquire land in the private sector, as some of these strata-title owners may come to more realistic pricing terms under the current market conditions.

2019’s investment market began with a gloomy business sentiment, but with the current global climate and in a city such as Hong Kong, things can change rather quickly. Knowing what is out there, what are the assets and opportunities for investment, and having a sound strategy in place will pay off. If you are interested in learning more about the five asset types and the opportunities surrounding them, do let me know. I’d be more than happy to share some of my thoughts.