Monitoring the trends of the Hong Kong property market now, to help their readers make critical predictions for what is to come:

Fintech is the fastest growing sub-sector

Agency View (Office services)
The rise of technology is gaining momentum in Hong Kong. The government budget allocation of a HKD2bn fund to co-invest with private venture capital funds into technology is accelerating growth in the tech industry. FinTech is the most commonly known and fastest growing sub-sector. However, InsurTech, HealthTech and PropTech are all beginning to emerge and disrupt their relative sectors.

Hong Kong is starting from fairly far back, even regionally with Singapore, Shanghai and even Beijing embracing this quicker than Hong Kong. However, the government funding should aid Hong Kong in catching up with these cities. Given Hong Kong’s strategic position both politically and geographical as a gateway to China we expect growth to be very strong.

Research view
As fintech emerges as a major contributor to the traditional finance industry, banks are actively seeking to identify and foster new fintech talents and innovations. Thus, we may see more financial institutions partnering with fintech incubators and even establishing their own incubator or innovation centres. According to Accenture, APAC fintech investments have increased 34 times over 2010-2015 to USD4.3bn. With recent firm interest from the private sector and the government’s desire to promote fintech in Hong Kong, we hope to see a rapid expansion of fintech industry in coming years, making it one of the important drivers of demand for office space in the medium term in the CBD and adjoining non-decentralised locations.

Pressure on prices of luxury houses

Residential sales view
A luxury villa in Residence Bel-Air Phase 5 was sold for a loss at HKD110m, nearly 34% below the original purchase price HKD166m in November 2011. Combined with stamp duty and commission, this transaction resulted in a loss of HKD64.6m compared to the original price.

News
A 2,476 sq ft foreclosed unit at 39 Conduit Road in Mid-Levels has been sold for HKD108.3m (USD13.88m) or HKD43,740 per sq ft (USD5,608 per sq ft). At this price, it is 11% above the opening bid and 20% below the purchase price paid in December 2013. The slowing economy in Hong Kong and China and deteriorating property market in Hong Kong since last September have weighed heavily on leveraged buyers. Some aggressive investors have remortgaged their properties several times but find themselves hard pressed to make payments as home prices deflate. (Source: SCMP, 29 April 2016)

Research view
The market should see more distressed home sales in the near future as home prices deflate and there could be more borrowers failing to pay mortgages on time when downward trend continues. However, the likelihood of a drastic increase in foreclosures seems remote because the current situation is much less serious than in previous housing downturns when borrowing costs and debt levels were high. The latest statistics by the Hong Kong Monetary Authority shows that the number of negative equity cases increased 14 times from 95 cases in Q4 2015 to 1,432 in Q1 2016, the highest number since Q4 2011. The peak level of negative equity cases stood at 105,697 in 2003.

Yen strength bites store profits

News
Snack chain 759 Store has decided to close at least 15 outlets this year in the face of a stronger Japanese yen and reduced sponsorship. The company has reported its first loss since its launch in 2010, blaming the currency appreciation for raising the cost of its products from Japan. (Source: Inside Retail Hong Kong, 28 April 2016)

Research view
On 28 April 2016, the Japanese yen jumped 3% against the US dollar in just four hours after the bank of Japan decided not to intensify monetary easing. Over the past couple of years the weakening of the Chinese renminbi against the US and therefore the HK dollar has been bad news for HK tourist arrivals, and hence for retail sales and retail property rental levels. The strengthening of the Japanese yen is further bad news for the retail sector, since Japanese goods are popular in Hong Kong and buying goods in Japan will become more expensive for Hong Kong retailers and hurt their profit margins. Colliers expects retail sector rents to fall by 10%, and the value of retail properties to fall by 24% in 2016. The possibility of even steeper declines cannot be ruled out.  

Versace plans to open 12,600 sq ft flagship despite retail downturn

News
The international luxury fashion brand Versace will open a new flagship boutique at Shanghai Commercial Bank Tower, located at 12 Queen’s Road Central, in October 2016. The boutique will become the largest flagship store of Versace in Asia. The retailer has agreed to occupy 12,600 sq ft of space on the G/F and 1/F. (Source: Shanghai Commercial Bank press release 25 April 2016)

Research view
Versace’s move to open its Asia flagship store in Central amid tough times in the Hong Kong retail sector suggests now may be the time to seize the opportunity of falling rents to lease iconic stores in prime locations with the purpose of increasing brand awareness. Overall prime street rents have dropped back to the level of Q4 2010. We predict rents of prime high-street shops will fall another 10% in 2016, following a 24% decline in 2015.