What’s to blame for Hong Kong’s lacklustre real estate investment demand in Q3?

Only 20 deals worth HK$18.1b were transacted in the quarter.

According to CBRE, commercial real estate investment volume (deals worth over HK$77 million, excluding pure land or related transactions) rose by 5.7% quarter-on-quarter to HK$18.1 billion in Q3 2022. 

Only 20 transactions were registered this quarter, less than half of the total signed in Q2 2022. Deal flow was on par with the low levels witnessed from Q4 2019 to Q3 2020.

Here’s more from CBRE:

Year-to-date investment volume totaled HK$48.6 billion, just 60% of last year’s annual total.

Towards the end of the quarter, Hong Kong’s major banks raised their Best Lending Rate by 12.5 bps, in response to the U.S. Federal Reserve’s fifth interest rate hike this year. The HKMA also lowered the interest rate stress-test requirement from 300 bps to 200 bps for all property mortgages.

Several mortgage sales were recorded. The sale of a Grade A office building at 17 Kai Cheung Road for HK$7 billion was the largest commercial transaction year-to-date, accounting for 39% of total quarterly volume. Office investment volume therefore eclipsed other sectors for the first time since Q1 2021.

Property funds deployed HK$8.7 billion, the highest quarterly total year-to-date. However, this only involved seven transactions, with the majority confined to the industrial and hotel sectors.

A ESR Group-led consortium won the bidding for a government industrial site in Kwai Chung for HK$5.25 billion.

Reeves Yan, Executive Director, Head of Capital Markets, CBRE Hong Kong: “Investment demand softened in Q3 2022, mainly due to the commencement of an interest rate upcycle. Despite the continuous interest of property funds, local investors have become increasingly cautious. While the resumption of international travel will improve business sentiment and economic growth prospects for Hong Kong, the prolonged closure of the Mainland China border and the depreciation of the RMB against the USD/HKD are set to create barriers for demand recovery from Chinese investors. Investment volume will likely remain broadly low in Q4 2022. Should travel with Mainland China resume next year, investment momentum is expected to have a noticeable recovery in 2023.”