New Chinese Security Law Changing Hong Kong Real Estate Market

Chinese investors are buying up Hong Kong real estate market as prices have plunged 30%, signaling a new demand.

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Property agents expect the influx of Chinese capital will help the sector recover, as the city stands ready to deploy liquidity. 

Amid China’s COVID-19 recovery, in August alone, Chinese buyers bought at least one hotel building worth HK $4 billion ($516 million U.S.), and two office towers.

“A majority of recent large-value building deals were bought by Chinese investors; their number has really grown in the third quarter,” said Reeves Yan, head of capital markets at CBRE Hong Kong.

The growth in demand coincidentally happened at the same time a new national security law in Hong Kong was passed, on June 30. The new law authorizes Beijing to secure their financial control in the center of Hong Kong.

With the new move by Chinese investors, foreign investors are staying away due to mounting concerns over the city’s near future, economically and politically. Critics of the new legislation say it has pushed the former British colony toward a more authoritarian path, following the past few years of sometimes violent democracy movements. 

“Foreign investors are still absent. I spoke to two foreign funds recently who said they won’t consider Hong Kong at the moment because the political risks are relatively high now,” said Daniel Wong, CEO of Midland IC&I.

Mainland Chinese companies started to make a noticeable impact on the local market in February. State-owned China Mobile purchased two land parcels for HK $5.6 billion and HK $3.7 billion. China called on its biggest state firms to take a more active role in Hong Kong, like stepping up investments and asserting more control of companies.

The latest spike is being driven by Beijing’s new investments, but while some of the buyers are government-backed, most are private investors.

Chinese investments totaled 39% of total commercial real estate transactions in Hong Kong just this year, up from 19% since the beginning of 2019.

Prices of office and retail shops will remain under pressure for the next 12-18 months as the economy recovers.