Falling Hong Kong Real Estate... Runs This Year

China's Big Player Makes a Comeback
US Fed Eases Tightening
Hong Kong Faces Worst Recession
Real Estate Revival Stretches Out

[Asia Economy Reporter Haeyoung Kwon] The Hong Kong real estate market, which experienced its worst decline since the Asian financial crisis, is expected to enter a recovery phase this year. The easing of COVID-19 lockdowns has brought back China's 'big spenders,' and expectations that the U.S. Federal Reserve's (Fed) tightening cycle is nearing its end are fueling this optimism.

[Image source=Yonhap News]

According to major foreign media on the 13th, Hong Kong real estate-related stocks have been rising since the beginning of the year. Guangdong Investment has surged more than 10% since the end of last year, and Henderson Land rose 7.2%. The Hang Seng Real Estate Index also increased by 3.1% since the start of the year.

Last year, Hong Kong housing prices fell by 15.6%. This was the first decline since the 2008 global financial crisis and the largest drop since 1998 (-32.5%). The abandonment of China's mainland 'zero COVID' policy acted as a catalyst for reversal. Since the easing of COVID-19 lockdowns in December last year, expectations that the economies of mainland China and Hong Kong would revive have pushed up Hong Kong real estate stock prices.

In particular, REITs (Real Estate Investment Trusts), which have emerged as a symbol of undervaluation, are cited as a factor in the rebound. REITs, funds specializing in real estate investment, are currently trading at stock prices lower than the total value of the real estate assets held by the funds. For example, 'Fortune REIT' is trading at a price 54% below its net asset value. This has recently been a reason why fund managers are scooping up REITs. Expectations that the Fed will halt interest rate hikes within the year are also seen as positive factors for REITs, which raise substantial funds through borrowing.

Major institutions are also issuing positive forecasts for the Hong Kong real estate market this year. Moody's Investors Service, an international credit rating agency, predicted in a report last week that retail rental income for Hong Kong real estate companies will increase by more than 10% this year due to rebounds in tourism and retail sales. Recently, the Hong Kong South China Morning Post (SCMP) also cited experts saying that Hong Kong real estate investment could increase by up to 15% this year. Global integrated real estate services firm CBRE also projected in its 2023 Asia-Pacific Investment Intentions Report that Hong Kong will rank among the top 5 global investment regions this year, returning to the 'Top 5' for the first time in four years.

Daniel Fitzgerald, portfolio manager at Franklin Templeton Asset Management, said, "We maintain a positive position on companies listed on the Hong Kong stock market across infrastructure, utilities, and real estate," adding, "There is no reason these companies cannot return to the levels (stock price peaks) at which they previously traded in the reopening environment."