The onset of the COVID-19 pandemic and China’s zero-tolerance policy have pummeled Hong Kong’s real estate market, but market watchers were anticipating a swift rebound once tourists were allowed back into China’s borders. However, China’s reopening is not turning out to be the economic silver bullet that Hong Kong may have hoped for.
Though restaurants are bustling and shops are full, prime commercial developments are being sold well below asking price. For instance, Sun Hung Kai Properties Ltd. recently paid HK$4.73 billion ($603 million) for a premium commercial property that will eventually be home to “the second tallest landmark building in Kowloon.” But HK$4.73 billion is significantly less than the HK$7.3 billion-12 billion range the land was anticipated to bring in. This sale highlights the doubts held by the corporate elites over Hong Kong’s economic recovery and, consequently, its real estate recovery.
The outlook in the office sector looks bleak as well. Financial institutions are the largest lessees for Grade-A office buildings, accounting for 27 percent of the overall lease volume. But with Western investment banks laying off workers and reducing their exposure to China, Hong Kong is suffering a loss in deal volume. Additionally, Hong Kong has put its eggs into the office development basket, whereas demand is not keeping pace.