Concrete Analysis | Why Hong Kong property market continues to entice investors despite yield compression
- Despite yield compression, limited new supply of high-quality real estate in Hong Kong has helped entrench the city’s assets as a safe haven
- The HK$9.845 billion deal for Cityplaza One in Taikoo reflects underlying appetite for trophy assets as Covid-19 pandemic boosts long-term appeal
In Hong Kong, the market yields of different types of residential properties dropped quite notably over the past 10 years, from a range of 2.5 per cent to 3.7 per cent in early 2011, to the current level at 2 per cent to 2.4 per cent, according to data published by the Rating and Valuation Department.
The trend has been similar, but less obvious for non-residential properties in the city during the same period. The market yield of Grade A offices declined to 2.6 per cent from 3.1 per cent, while that of retail properties eroded to 2.7 per cent from 3.1 per cent. It dwindled to 3.1 per cent from 4.1 per cent for industrial premises, mainly in private flatted factory buildings.
The yields for Hong Kong properties are among the lowest in major Asian markets. The average yield for non-residential properties is 4.5 per cent to 5.5 per cent in Tier-1 mainland Chinese cities, and 3.6 per cent to 4.6 per cent in Tokyo, according to data compiled by Knight Frank. They generate 4 per cent to 6 per cent in Singapore, and 6 per cent to 8 per cent in Kuala Lumpur and Jakarta.
Last year, Hong Kong recorded 59,880 residential transactions and 13,442 non-residential transactions, according to government records, marking a drastic decline from the boom year of a decade ago. There were 135,778 residential and 26,961 non-residential transactions in 2010.
This might lead to the quick conclusion that property assets in Hong Kong are not as attractive to investors as before, as we have seen the Hong Kong property market lose its competitiveness in the past decade. However, the statistics require a closer examination.
Rental returns did not drop in absolute numbers. According to official data, the overall residential rental index increased 61.1 per cent between 2010 and 2020. Office rents surged 69.6 per cent, while retail and industrial rents grew by 45.2 per cent and 103.7 per cent, respectively. This shows that investors did not receive less rental income even though the yield was lower.
