Hong Kong’s economic system remains to be struggling to regain momentum, in line with a Monetary Occasions evaluation of the most recent knowledge, with any advantages from decrease US rates of interest and a Chinese language stimulus package deal anticipated to take time to filter down.
The Asian monetary hub recorded progress of two.8 and three.3 per cent respectively within the first two quarters of this yr. Economists count on it to point out one other optimistic studying for the three months to September.
However Hong Kong’s financial prospects have been hampered by slowing financial progress in China, larger US rates of interest and a fall in vacationer numbers.
Mounting unhealthy money owed from distressed properties and companies are weighing on the territory’s banks, and will inflict additional ache on the broader economic system, analysts warn.
“It’s a query of whether or not the standard enterprise fashions” — together with monetary companies, tourism and actual property — “can nonetheless match the brand new financial actuality”, mentioned Gary Ng, a senior economist at Natixis, citing the problem of decelerating financial progress in China.
“Such a change might not solely have an effect on funding in mainland China, but in addition not directly via Hong Kong.”
Previous to the coronavirus pandemic, sturdy demand for property from mainland patrons made Hong Kong one of many world’s most costly actual property markets.
New immigration and funding schemes focusing on arrivals from China have helped revive their numbers and buoy rents. Mortgage charges had been nonetheless outpacing gross rental yields, famous Edward Chan, a director at S&P International Rankings.
“Homebuyers [are likely to] choose to attend till mortgage charges to come back down . . . earlier than contemplating shopping for,” Chan mentioned. “There’s additionally incremental residential demand from new immigrants from mainland China, who usually tend to hire initially whereas gauging whether or not they may keep in Hong Kong over the long run.”
The Federal Reserve’s current 50 foundation level rate of interest reduce has raised hopes of some reduction for the territory, the place the forex is pegged to the US greenback.
Solar Hung Kai Properties, one among Hong Kong’s largest actual property builders, offered greater than 200 flats in a single day at its landmark new residential undertaking final week, with one govt pointing to enhancing market sentiment.
However new house provide “continues to outstrip demand”, mentioned Chan. Many would-be patrons are ready for costs to fall additional, in line with actual property brokers and analysts.
The industrial actual property market can be grappling with oversupply. Prime workplace rents have fallen about 17 per cent since 2022, in line with industrial actual property agency Cushman & Wakefield, in comparison with a greater than 20 per cent drop for house costs over the identical interval.
Whereas distant working has not taken as a lot of a toll on the densely populated Chinese language territory as in London or San Francisco, it has suffered a unique drawback: international firms downsizing operations or leaving, a lot of them involved by their publicity to opaque safety legal guidelines or their lack of autonomy beneath Hong Kong’s stringent pandemic social controls.
“Fewer international companies are coming to Hong Kong whereas Chinese language firms’ [demand for] workplace area has diminished”, mentioned Alex Lam, a Hong Kong-based govt director of workplace companies at property company Colliers.
The variety of multinational firms with regional headquarters in Hong Kong fell to 1,336 final yr from 1,541 in 2019, with these from the US accounting for one of many largest drops.
The speed reduce is prone to “elevate transactions somewhat than costs”, mentioned Ng, however “decrease rates of interest might not have the ability to override the structural challenges in industrial properties with not less than one other yr of downturn”.
Industrial actual property funding quantity was virtually HK$34bn ($4.3bn) within the first 9 months of this yr, the second-lowest degree since 2008 over the identical interval, in line with actual property group CBRE. Greater than half of that determine represents distressed belongings offered by overly leveraged debtors or banks.
As stress has accrued on the actual property market, HSBC’s publicity to defaulted Hong Kong industrial property loans has surged virtually sixfold to greater than $3bn within the first half of this yr.
Corporations aren’t the one ones who’ve but to return. The full variety of inbound vacationers in Hong Kong — most of whom come from mainland China — remains to be at about 30 per cent of 2018 ranges, virtually two years after the territory lifted Covid restrictions.
They’re additionally spending much less. Per capita vacationer retail spending fell 30 per cent within the first six months of this yr in contrast with 2018, in line with Jeannette Chan, senior director of retail at JLL.
Retailers in Hong Kong mentioned customers had been nonetheless cautious, although some expressed optimism concerning the Golden Week vacation this month.
However in a reversal of conventional flows, Hong Kong residents are more and more spending throughout the border in Shenzhen, lured by decrease costs. Outbound journey by residents, together with to mainland China, will proceed to place Hong Kong’s retail sector beneath stress, mentioned Ricky Tsang, a director at S&P International Rankings.
Decrease mortgage repayments may enhance client sentiment over the following few months, mentioned Marcos Chan, govt director and head of analysis for CBRE in Hong Kong.
China’s current stimulus package deal additionally lifted market sentiment in Hong Kong in current weeks, with the territory’s Grasp Seng index hovering earlier than taking its largest one-day dive since 2008 on Tuesday after traders had been dissatisfied when anticipated fiscal spending didn’t materialise.
“A giant chunk of Hong Kong-listed corporates are closely weighted to the mainland,” mentioned Zhikai Chen, head of Asia equities at BNP Paribas Asset Administration.
The index is up virtually 25 per cent yr up to now, in line with knowledge from Refinitiv, however stays greater than 35 per cent down from its 2018 peak. Residence equipment maker Midea raised about $4bn in a Hong Kong secondary itemizing final month, giving the territory’s markets one other much-needed increase.
However analysts doubted that the share sale signalled a broader revival in public choices. The “rising dependence on China simply when China is slowing down is a problem,” mentioned Heron Lim, economist at Moody’s Analytics.
“If China does enhance its prospects, Hong Kong’s advantages because the gateway to China can even enhance,” Lim added. However with “scant” element about China’s fiscal stimulus plans, “the expansion prospects are conservative”.
