The Financial Times of the United Kingdom published an article on May 8 titled “The Painful Slump in Hong Kong Property,” expressing concerns from the boards of directors of Hong Kong’s four major property developers (Cheung Kong, Sun Hung Kai Properties, New World Development, and Henderson Land Development) about the unsettling correction in the market.
According to foreign media reports, due to high interest rates and the continued economic downturn in mainland China, property prices and rents in Hong Kong are declining, casting a shadow over the real estate market.
The report quoted real estate agents revealing that The Henderson, a property under Henderson Land Development, currently has a rental rate of only 60%, with tenants including auction house Sotheby’s, Swiss watchmaker Audemars Piguet, and private equity firm Carlyle. Henderson Land had previously stated in September 2023 that the project’s rental rate was close to 50% at that time, with a target of reaching 80% by 2024 – clearly indicating that the current rental rate falls short of the initial expectations.
The report also mentioned that negotiations for the second phase of the Center of the Yangtze River have been dragging on with potential tenants, resulting in a rental rate of only 10% as of March this year.
Data from real estate consultancy Knight Frank shows that the office vacancy rate in Hong Kong rose by 2.5 percentage points year-on-year to 19.6% in the first quarter of 2024, reaching an 8-year high. Fiona Ngan, Head of Global Corporate Services at Cushman & Wakefield, noted that the leasing market for Grade A office space in Hong Kong has yet to bottom out.
The report also cited UBS stating that office rents in Central, Hong Kong’s commercial district, are about 35% higher than those in Marina Bay, Singapore, and expects a 5% further decline in residential property prices in Hong Kong this year. UBS further mentioned that property prices and office rents in Hong Kong are unlikely to rebound as they did in the past.
Furthermore, the report highlighted the increasing concerns of the boards of directors of Hong Kong’s four major property developers regarding the market correction. Some developers had made significant land acquisitions before the decline in property prices, such as Henderson Land acquiring a waterfront site in Central for HK$50.8 billion in 2021. Analysts at Morgan Stanley estimate that based on current prices, the operating profit margin for developers might decrease from around 40% in 2022 to 19% by 2025.
The report also indicated that developers are uncertain about predicting the housing market conditions in Hong Kong for the next decade. With the growing integration of the Hong Kong and mainland China economies, future developments may lean towards the peripheries of the New Territories closer to the mainland border.