Hong Kong, 27 November 2019 - Colliers International (NASDAQ: CIGI; TSX: CIGI), a global leader in commercial real estate services, has released its Annual Hong Kong Investor Survey Report 2019. In its third consecutive year, the Investor Survey covered a pool of 79 developers, REITS, private funds and family offices based in Hong Kong.
This year’s survey results show that investment appetite in Hong Kong remains positive despite the challenges in the local investment market, contributing by the escalating political unrest and the prolonged US-China trade war. Over the next 12 months, 71% and 89% of the investors surveyed indicated that they are looking to deploy capital within and outside of Hong Kong respectively.
“On the back of the ongoing social unrest and global uncertainties, business sentiment has weakened and economic growth has slowed down. Whilst the property market enters a consolidation phase, we expect the next 12 months to be a buyers’ market in Hong Kong, with investors looking for assets with discounted prices, which will likely have longer negotiation periods. 38% of the respondents indicated that they are likely to be ‘net buyers’, compared to only 17% identifying themselves as ‘net sellers’, however, which also reflects that investors do not have the urgency to sell their assets,” said Rosanna Tang, head of research, Hong Kong and Southern China.
Outbound investment interest remains strong
The outbound investment intention among local investors remains strong, with 89% of respondents indicating that they will invest outside of Hong Kong in the next 12 months. Despite the uncertainties brought about by Brexit, survey findings show that London (40%) is the most attractive destination for outbound investment, and investors remain positive on the city’s long-term prospects. Shanghai (37%) and Singapore (37%), which serve as the major gateway cities in Asia, remain the most favoured destinations within the region. Singapore would serve as an alternative safe haven for investors looking to diversify their investment portfolios amid growing uncertainties in Hong Kong and the slowing economy in China.
Since the Central Government announced the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) in February 2019, investment interest in the GBA has been increasing. Close to half of the respondents (49%) expressed their desire to increase their investment in the GBA. Among cities in the GBA area, Shenzhen captured the most investment interest (57%), given the Central Government revealed its plan to make it a “model city” designed to offer outstanding competitiveness, high-quality growth and transformation to a world-influencing hub of innovation, entrepreneurship and creativity by 2035.
Political instability the most important factor to hurt market sentiment
Two-thirds of the respondents (68%) regard ‘political instability in Hong Kong’ as the most important factor impacting the local investment market in 2020. According to data from Real Capital Analytics, transactions for commercial assets above HKD100 million (USD12.8 million) fell by 69% from HKD47.2 billion (USD6.1 billion) in Q2 2019 to HK$14.9 billion (USD1.9 billion) in Q3 2019. The decline could be attributed to the widely weakened investment sentiment since the escalating protests that began in June. We expect that investment transaction volumes in 2020 could still depend on whether the social unrest persists, and sellers will be more willing to negotiate on asking prices over the next 12 months.
Investment strategy in 2020
Although investment appetite remains positive, the survey results show that investors in general tend to be more cautious in investing, with 73% of them indicating they are ‘unlikely / not at all likely’ to take on more risks. Yet over half of the survey respondents (57%) are still seeking opportunities with higher returns through a “value-add” investment strategy while yields remain low across different sectors in Hong Kong. We recommend that industrial properties are suitable for adopting a “value-add” investment strategy. Investors should leverage on the new measures on industrial buildings laid out in the Industrial Revitalization Scheme 2.0, and look out for asset enhancement, refurbishment or redevelopment perspectives.
In terms of attractive investment assets in the next 12 months, we recommend strata-title offices in the CBD. “We forecast that office prices and rents to decline within the CBD area in 2020. This should provide a window of opportunity for investors to gain exposures in the strata-title office space with discounted prices compare to previous years. While supply will be limited in core locations, CBD office prices should rebound quickly once the market picks up again,” said Antonio Wu, deputy managing director, Capital Markets.