Concrete Analysis | Covid-19 and Sars: a cautionary tale of two crises for Hong Kong’s all-important property market
- Although Hong Kong’s property market has been steadily slowing because of the coronavirus epidemic and social unrest before that, demand is holding up for now
- Property seen as a relatively stable asset compared to equities as stock markets continue to get battered worldwide
The Covid-19 pandemic is beginning to take a toll on the economy and has drastically affected our daily lives. But in moments of crisis there are also opportunities that inevitably arise. When looking at the situation purely from an investment perspective, drops in property market prices are contributing to something of a silver lining for potential buyers.
When Sars (severe acute respiratory syndrome) hit in 2003, Hong Kong and its property market were in a very different place. As the city became the epicentre of an unknown disease, there was less knowledge and information on hand for an even longer period of time. The mystery and suddenness of the illness caught Hong Kong off guard, which understandably generated considerable anxiety.
At that time, property prices were falling off a low base near the end of a depressed property cycle. For example, a HK$30 million (US$3.9 million) home could be picked up for HK$20 million. But today, that same house may be closer to HK$100 million and it’s not going to drop back into the HK$20-30 million range.
Eight weeks ago, Covid-19 was considered to be a regional problem, but now it’s shutting the world down. Against this backdrop, the Hong Kong property market has been slowing. Nearly eight months of protests had already pushed prices down by 10 per cent, and now they’re drifting down again. While this may seem like the start of a major correction, ultimately it is demand that sets prices. Currently all signs point to demand remaining robust.
In leasing, it’s currently a renter’s market and tenants are taking advantage of falling rents to seek out better deals, despite their own job and location uncertainty. In sales, that same uncertainty is keeping some buyers out of the market, but just as many are capitalising on prices that are down by as much as 20 per cent in some cases.
That’s an amazing change from just 18 months ago, and investors of all stripes should understand that they are witnessing a rare opportunity. Plenty of potential buyers with cash are watching and waiting for more value in the market or even for distressed sales. The Federal Reserve cutting interest rates to nearly zero and resetting Hibor at roughly 1.73 per cent (as of March 19) are also a lure.
