Hong Kong’s economic system continues to be struggling to regain momentum, in response to a Monetary Occasions evaluation of the most recent information, with any advantages from decrease US rates of interest and a Chinese language stimulus bundle anticipated to take time to filter down.
The Asian monetary hub recorded development 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 constructive studying for the three months to September.
However Hong Kong’s financial prospects have been hampered by slowing financial development in China, greater 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 providers, 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 development in China.
“Such a change could not solely have an effect on funding in mainland China, but additionally not directly by Hong Kong.”
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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 concentrating on arrivals from China have helped revive their numbers and buoy rents. Mortgage charges have been nonetheless outpacing gross rental yields, famous Edward Chan, a director at S&P World Scores.
“Homebuyers [are likely to] desire to attend till mortgage charges to return down . . . earlier than contemplating shopping for,” Chan mentioned. “There’s additionally incremental residential demand from new immigrants from mainland China, who usually tend to lease 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 lower has raised hopes of some aid for the territory, the place the foreign money is pegged to the US greenback.
Solar Hung Kai Properties, considered one of Hong Kong’s greatest actual property builders, offered greater than 200 flats in a single day at its landmark new residential mission this month, with one govt pointing to bettering market sentiment.
However new dwelling provide “continues to outstrip demand”, mentioned Chan. Many would-be patrons are ready for costs to fall additional, in response to actual property brokers and analysts.
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The business actual property market can also be grappling with oversupply. Prime workplace rents have fallen about 17 per cent since 2022, in response to business actual property agency Cushman & Wakefield, in comparison with a greater than 20 per cent drop for dwelling 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 special downside: 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 house has diminished”, mentioned Alex Lam, a Hong Kong-based govt director of workplace providers 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 greatest drops.
The speed lower is more likely to “elevate transactions relatively than costs”, mentioned Ng, however “decrease rates of interest could not have the ability to override the structural challenges in business properties with at the very least one other yr of downturn”.
Business actual property funding quantity was virtually HK$34bn ($4.3bn) within the first 9 months of this yr, the second-lowest stage since 2008 over the identical interval, in response to actual property group CBRE. Greater than half of that determine represents distressed property offered by overly leveraged debtors or banks.
As stress has accrued on the actual property market, HSBC’s publicity to defaulted Hong Kong business property loans has surged virtually sixfold to greater than $3bn within the first half of this yr.
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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 — continues 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 response to Jeannette Chan, senior director of retail at JLL.
Retailers in Hong Kong mentioned customers have been nonetheless cautious, although some expressed optimism in regards to 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 World Scores.
Decrease mortgage repayments may fortify shopper sentiment over the subsequent few months, mentioned Marcos Chan, govt director and head of analysis for CBRE in Hong Kong.
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China’s current stimulus bundle additionally lifted market sentiment in Hong Kong in current weeks, with the territory’s Hold Seng index hovering earlier than taking its greatest one-day dive since 2008 on Tuesday after buyers have been dissatisfied when anticipated fiscal spending didn’t materialise.
“An enormous 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 thus far, in response to information from Refinitiv, however stays greater than 35 per cent down from its 2018 peak. House equipment maker Midea raised about $4bn in a Hong Kong secondary itemizing final month, giving the territory’s markets one other much-needed enhance.
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 may also enhance,” Lim added. However with “scant” element about China’s fiscal stimulus plans, “the expansion prospects are conservative”.
