World’s Priciest Property Market Is Losing Its Biggest Customer
The flow of capital from Mainland China into Hong Kong’s properties has been nearly invincible for decades. The price of each square foot on the island has been closely correlated with per capita wealth creation on the mainland. Now, it seems both are under undeniable pressure.
Chinese consumers have always had an insatiable appetite for Hong Kong real estate. In fact, investors poured billions into the market despite the protest-fueled violence on the streets last year. In the second-half of 2019, at the height of Hong Kong’s unrest, Chinese investors deployed a record $20 billion in Hong Kong stocks according to The Wall Street Journal. Real estate purchases remained stable, while residential property prices reached a peak in June, 2019.
The COVID-19 pandemic hasn’t made Hong Kong property any less attractive, but it may have dented Mainland investors’ ability to keep investing. China’s economy shrank 6.8% in the first quarter of 2020, its first contraction since 1976. With businesses being squeezed and wealth evaporating, mainland investors could be forced to sell their Hong Kong holdings, according to property firm Savills.
It isn’t just Hong Kong. Chinese investors seem to have also retreated from their other favorite investment destinations. RE/MAX Canada reported a sudden dip in Chinese buyers in Metro Vancouver, where they represent nearly a third of the market. Similarly, mainland investors were abandoning London’s real estate market, according to the Telegraph.
For years, demand from Chinese investors has anchored the global property market. Whether this outflow of capital from global real estate will continue depends on the uncertain long-term impact of the pandemic on the world’s second largest economy.