HK property prices firm despite outlfow of capital into UK

Mark O'Neill May 03, 2021 09:33

Last July, when Britain opened the door to tens of thousands of Hong Kong people with BNO passports, everyone forecast a capital outflow as migrants rushed to sell their homes here and buy new ones there, with prices in Hong Kong dropping as a result.

The flood of capital leaving the city is happening – but property prices here are stable, thanks to increased demand from mainlanders, especially for luxury units, and wealth created by the booming stock market, which recorded record turnover in the first quarter.

In a research report published last week, Bloomberg Intelligence said that 13,100 – 16,300 households – about 65,000 people – may move to UK with their BNO passports this year, about one per cent of households living in private property in Hong Kong. If all of them sell their homes, that would generate up to HK$150 billion in 2021 alone. So far more than 35,000 families have applied for BNO passports.

In an earlier report, the Bank of America estimated the capital outflow this year even higher, at HK$280 billion. That is the value of the HK apartments the migrants sell, at HK$7.53 million – the average in Kowloon – plus pension savings they withdraw. A British Home Office study last year said that 153,300 Hong Kong people could settle there during 2021.

The UK market has been buoyed by this influx of capital. Benham and Reeves, a large property agent in London, said that, since last July, Hong Kong people had bought HK$10.3 billion worth of homes in the British capital.

Hong Kong people account for 8.5 per cent of purchases by foreigners in central London, second equal with Americans and mainland Chinese, after French with 14.6 per cent.

Hong Kong newspapers are crowded with advertisements for British properties, not only for ‘brand’ areas like central London, Birmingham and Manchester but also districts like Barking, Slough, Whitechapel, Hounslow, Luton and Harlow that are little known here.

The buyers include not only companies and individuals but also groups of people who pool their money, in order to get a step into the UK property market.

The fact that Hong Kong people have the means and desire to buy property is a major reason why the UK government approved the BNO project, the most generous immigration offer in British history.

London sees HK people as bringing capital, skills and hard work, in part to compensate from what is being lost through Brexit.

But, contrary to expectation, property prices in Hong Kong have not fallen. Current values are just 5.4 per cent lower than the record high set in 2019.
According to the latest figures from the Ratings and Valuation Department, the March index was private domestic property was 388.3, up 0.8 per cent from February, the third monthly increase and the highest level in 20 months. The sales price for a new project in Wong Chuk Hang on sale this month was more than HK$30,000 per square foot.

Ronnie Chan, chairman of Hang Lung Properties, said last week that the wave of emigration would not influence property prices here. “They are two completely different issues. I do not believe one will impact the other. Mainlanders, Hong Kong people and overseas Chinese all like property here and are optimistic on the luxury market. They will support the development of the economy in future years.”

What are keeping prices strong? One factor is purchases by mainlanders, who accounted for 11 per cent of purchases in the residential market in the first quarter, up from 8.7 per cent in the second quarter of 2020.

They are particularly active in the luxury segment -- homes costing more than HK$100 million. They accounted for a third of such transactions in the first quarter this year, up from 30.3 per cent in the first half of 2020.

The Hong Kong stock market reported average daily turnover of almost HK$61 billion by mainland investors in the first three months of this year, helping to take total daily turnover to a record HK$224 billion.

In the period, 32 IPOs raised HK$132.8 million, an eightfold jump compared with the same quarter of 2020.

Many senior managers of these newly listed companies want to purchase a property here. Meanwhile, the booming market has created enormous liquidity, some of which has flowed into the property market.

Also buying are “new Hong Kong people”, recent immigrants from the mainland, many with jobs in finance, hi-tech, the law and other high-paying sectors.

In addition, supply for new homes cannot meet demand. According to official figures, only 18,000 new private units will come onto the market, 2,660 fewer than in 2020.

Such a strong market may persuade some of those emigrating to the UK to retain their properties here. They can use the rental income to finance their move and leave open the option of returning if they wish.

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.