HONG KONG (BLOOMBERG) - A controversial security law that threatens to upend Hong Kong's status as an Asian financial hub has not slowed the world's most expensive real estate market.
Dozens of would-be buyers lined up in the rain last week for a chance to bid on 94 apartments in The Campton project in central Kowloon, with prices starting at HK$6.8 million (S$1.22 million) for a one-bedroom condo. All but one of the units were snapped up in eight hours, bringing in HK$880 million for the developer, China Vanke Co.
"When the political system and economy are unstable, cash depreciates quickly," said a woman named Li, who joined the line in the Tsim Sha Tsui neighbourhood. Ms Li wanted to use only her surname while discussing the security law as the matter is sensitive.
"I want to use up the money for an apartment to preserve value."
On the surface, it does not seem like the best time to buy a property in Hong Kong. The future of the former British colony is clouded by China's introduction of the security bill, prompting the United States to threaten removal of Hong Kong's special status.
The legislation is triggering concerns about capital outflow, sparking renewed pro-democracy protests and increasing tensions in a city trying to recover from the pandemic. The economy is expected to see a record 7 per cent contraction this year.
For some residents, the political and economic turmoil make real estate a better bet than other assets. Last month, Sun Hung Kai Properties Ltd. sold 97 per cent of its 298 apartments worth almost HK$2 billion in one day, according to the developer.
Ms Li, a housewife in her 40s, believes the housing market can withstand a deteriorating economy because the supply of homes will never catch up to demand.
"Hong Kong is a very small place," she said outside the Vanke project sales centre. "If you look at home prices 20 years ago and now, properties bought then are all making huge profits."
The numbers back her up. Property prices have surged 230 per cent since 2000, data from Centaline Property Agency Ltd. show, bolstering the view of many Hong Kong residents that property will always be a haven. Despite a contracting economy, existing home prices have risen 1.2 per cent this year, and are the highest since November, based on the Centaline index.
Even as prices and sales have dropped in many global markets such as London and Singapore, Hong Kong recorded 6,885 property deals in May, a 12-month high as the city eases pandemic measures. The average price citywide stands at HK$15,589 per square foot, according to Midland Realty, making it the world's least affordable market.
"Prices have proved remarkably resilient, especially if you consider that the Hong Kong market has become a byword for unaffordability," said Mr Simon Smith, head of research and consultancy at Savills Plc. Mr Smith cites persistently low real interest rates and the city's relatively successful handling of the pandemic to explain the market's resilience.
In the long-run, limited supply, high demand stemming from a low rate of home ownership and close-to-zero interest rates will support the market, according to a Morgan Stanley report dated May 26 by analysts including Mr Praveen Choudhary.
That's not to say the property market isn't without risks. Businesses are shutting down and unemployment is at its highest in a decade. While job losses have mostly been in low-skilled sectors such as retail and catering, the spread of unemployment to professionals will affect their ability to repay mortgages. Savills expects residential home prices to drop 5 per cent in 2020.
The recession and plunging retail sales have also taken their toll on real estate stocks, though they rallied last week. The Hong Kong Hang Seng Properties Index, which includes the city's biggest developers, has declined 18 per cent this year versus a 12 per cent drop in the benchmark. Developers focusing on residential real estate such as Sun Hung Kai Properties have fared better than commercial landlords.
The doubts about Hong Kong's future has already prompted some residents to plot emigration to avoid the tightening grip from China. Non-resident bank deposits surged to a record in Singapore last week, an early sign that some people in Hong Kong are moving their money.
For now, home buyers seem willing to look past the risks.
"Hong Kong is one of the most liveable cities in China, if not Asia," said Mr Smith. "If it maintains its status as a global first-tier city, a gateway to China and an international financial centre, there is no reason why both the commercial and residential markets shouldn't continue to thrive."