Hong Kong Real Estate Report Q3 2012
Business Monitor International, June 2012, Pages: 66
The Hong Kong Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Hong Kong's Real Estate industry.
According to our most recent round of in-country interviews, which were conducted in December 2011, rents in Hong Kong could see a subdued 2012 in all commercial sub-sectors with an overall decline in rents predicted in the short term. For offices in particular, there is a consensus that economic uncertainty is spreading from the eurozone to the Asia Pacific region, leading to caution among investors and an overall slower market. However, moves by the government to ramp up development and create a new Central Business District (CBD2) in Kowloon East may keep office rents from decreasing for any prolonged period.
Retail rates in Hong Kong have the potential to remain positive, as a result of continued buoyant tourism from Mainland China and the continued expansion of international retailers into the region. Hong Kong is historically a key regional city for retail development. Industrial demand may experience a temporary fall, as external trade has decreased to the US and eurozone amid debt fears in those regions. However, logistics companies are increasingly looking towards emerging markets for their property, and this may help to prevent declines becoming too drastic.
Recent allegations have emerged in Hong Kong of corruption among government officials, where reportedly policies favour rich property developers. The arrests of Sun Hung Kai Properties’ Raymond and Thomas Kwok in late March have shaken the sector in the short term, with long-term effects from the crackdown yet to be seen. Leun Chun-Ying – recently elected as Hong Kong’s chief executive – hopes to address the imbalance and restore fairness to the market. However, there are fears that Hong Kong’s longenjoyed reputation as a free market and a financial centre may be compromised following these developments.
Our forecasts for 2012 GDP growth in Hong Kong are currently far below consensus, at 3.0% year-onyear (y-o-y) compared to consensus forecasts of 4.5%. A rebound in government spending and private consumption (despite decelerating) helped to bolster 2011’s estimate of 5.0%. But we maintain that export performance will continue to be a drag on growth, as will the continuation of a correction in the residential real estate market.
Key Opportunities In The Real Estate Market:
- Hong Kong remains at the top of a number of lists for real estate investment and rental levels, particularly in the office sub-sector. Its existing reputation could help to keep rents from dropping too far or too quickly.
- While office rents are expected to fall overall, there are some reports that levels in the Causeway Bay area will see an increase over 2012. That and the proposed development of Kowloon East’s CBD2 should increase grade A space in the long term, maintaining Hong Kong’s status as a global financial centre.
- Retail sales are likely to remain buoyant in the wake of a correction in the office market, owing to the continued influx of tourists from the mainland. Key Risks To The Real Estate Market:
- The global economic uncertainty is far from over, and a cautious overall market will stem investment, particularly from overseas, throughout 2012. The number of new developments are likely to decrease and the market may well get worse before it gets better.
- The expected drop in property prices in Hong Kong does not necessarily mean that increased affordability will follow. At a time of global market uncertainty, Hong Kong is still likely to remain one of the most expensive countries to buy property, residential and commercial.
- The ICAC’s recent crackdown on corruption in real estate policies is in its early stages and the overall effects on the market are for the most part yet to be seen. However, it is likely that any long-term developments relating to recent allegations will pose a downside risk to major developers in Hong Kong, as well as to the potential for new investment.
Executive Summary 5
SWOT Analysis 7
Hong Kong Real Estate/Construction SWOT 7
Hong Kong Political SWOT 8
Hong Kong Economic SWOT 8
Hong Kong Business Environment SWOT 9
Real Estate Market Overview 10
Market Analysis – Office 12
Supply And Demand 12
Rents And Yields 13
Table: Historic Rents – 2010-2011 (HKD per m2/month) 14
Table: Net Yield, 2011-2012 (%) 14
Table: Terms of Rental Contract/ Leases – Mid-2011 14
Industry Forecast Scenario 14
Table: Forecast Rents – (HKD per m2/month) 15
Table: Forecast Net Yield, 2008-2016 (%) 15
Market Analysis – Retail 16
Supply And Demand 16
Rents And Yields 16
Table: Historic Retail Rents – 2010-2011 (HKD per m2/month) 17
Table: Net Yield, 2011-2012 (%) 17
Table: Terms of Rental Contract/Leases – Mid-2011 17
Industry Forecast Scenario 18
Table: Forecast Rents – (HKD per m2/month) 18
Table: Forecast Net Yield, 2008-2016 (%) 18
Table: Hong Kong Retail Sales Indicators 19
Market Analysis – Industrial 20
Supply And Demand 20
Rents And Yields 20
Table: Historic Industrial Rents – 2010-2011 (HKD per m2/month) 21
Table: Net Yield, 2011-2012 (%) 21
Table: Terms of Rental Contract/Leases – Mid-2011 21
Industry Forecast Scenario 21
Table: Forecast Industrial Rents (HKD per m2/month) 22
Table: Forecast Net Yield, 2008-2016 (%) 22
Forecast Scenarios 23
Infrastructure Report 23
Table: Kong Construction And Infrastructure Industry Data, 2008-2016 23
Table: Hong Kong Construction And Infrastructure Industry Data, 2013-2021 24
Construction And Infrastructure Forecast Scenario 25
Macroeconomic Outlook 31
Table: Hong Kong - Economic Activity 33
Real Estate Risk Reward Ratings 34
Real Estate/Construction Risk/Reward Ratings 34
Table: Real Estate/Construction Risk/Reward Ratings 34
Hong Kong’s Business Environment 34
Table: BMI Business And Operation Risk Ratings 35
Institutions 36
Table: BMI Legal Framework Rating 37
Infrastructure 39
Table: Labour Force Quality 40
Market Orientation 41
Table: Asia, Annual FDI Inflows 42
Table: Trade And Investment Ratings 43
Table: Top Export Destinations 45
Operational Risk 45
Competitive Landscape 47
Company Profiles 48
Cheung Kong (Holdings) 48
Chinese Estates Group 50
Henderson Land Development (HLD) 51
Sino Group 52
Sun Hung Kai Properties 54
Demographic Data 56
Table: Hong Kong's Population By Age Group, 1990-2020 ('000) 57
Table: Hong Kong's Population By Age Group, 1990-2020 (% of total) 58
Table: Hong Kong's Key Population Ratios, 1990-2020 59
Table: Hong Kong's Rural And Urban Population, 1990-2020 59
BMI Methodology 60
How We Generate Our Industry Forecasts 60
Construction Industry 61
Bank Lending 62
Real Estate/Construction Business Environment Rating 62
Table: Weighting Of Indicators 63
Sources 65
Cheung Kong (Holdings) , Chinese Estates Group , Henderson Land Development (HLD) , Sino Group , Sun Hung Kai Properties ,
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