Hong Kong’s GDP continues to grow and the property market is not too bad
The Census and Statistics Department announced that Hong Kong’s gross domestic product (GDP) increased by 3.3% year-on-year in the second quarter, surpassing market expectations of 2.8% and higher than the 2.8% in the first quarter. It rose by 0.4% compared to the previous quarter. However, private consumption expenditure declined in the second quarter, going from a 1.2% increase in the first quarter to a 1.6% decrease in the second quarter.
The statistics released by the government seem inconsistent with the sentiments of ordinary people. Public perception appears to be significantly affected by the downturn in the retail sector. Many people notice the closure of numerous restaurants and the increasing number of vacant and hard-to-rent shops, leading to widespread pessimism and concern about the economic outlook. This ultimately contributed to a decline in private consumption.
However, while the local consumption of Hong Kong residents has weakened, their enthusiasm for traveling abroad remains intact, and their spending in mainland China has increased. This indicates that the people of Hong Kong are still benefiting from economic growth. Otherwise, how could they afford to spend on travel? I believe that during this period, the quality of life for Hong Kong residents should have improved rather than worsened.
The reality is that tourism and catering sectors in Hong Kong do not make up a significant portion of GDP. Most of it is driven by finance, insurance, professional services, trade, and logistics. The recent societal focus on tourism and catering has led some individuals to question the prospects of the economy, generating a more negative perception.
Dampened by this pessimism, residents of Hong Kong have reduced their consumption and are hesitant to invest. One noticeable change is that people prefer to rent properties instead of buying, to avoid the risk of asset value loss post-purchase. This concern about the market’s outlook lacks a foundation in the real economy and stems from alarmist sentiments.
Hong Kong’s GDP continues to grow, wages are simultaneously rising, and citizens need not worry about unemployment. Property prices have fallen nearly 30% from their peak. Coupled with declining interest rates, it stands to reason that potential buyers should consider purchasing a property at this time. However, the societal trend has been to prefer renting over buying.
This tendency has concentrated housing demand in the rental market, resulting in fewer property sales. In July, Centaline reported 2,945 leases compared to only 946 sales (including both first-hand and second-hand transactions). Leasing outpaced sales by three times, a situation that is quite unusual.
While there are numerous leasing transactions, this indicates that there is still housing demand in Hong Kong, though it is not reflected in the purchase and sale prices. Consequently, the forecast that property prices will continue to drop has been validated by the preference for renting over buying. The more individuals lean towards renting, the less support there will be for property prices. This lack of support discourages people from purchasing properties. Once this negative chain reaction begins, reversing the decline in property prices will be challenging.
Fortunately, Hong Kong’s real economy is performing well, and income growth among the populace continues to drive up rents for three consecutive months, reaching the highest levels since January 2020. If this trend persists, the burden of renting will increasingly weigh down on renters. Additionally, interest rates may gradually decrease, potentially enticing those who initially opted to rent back into the buying and selling market, thereby reflecting housing demand in property prices again. Therefore, as long as the real economy continues to grow positively, the performance of the property market should remain adequate. The vacancy rate for residential buildings in Hong Kong is just 4.1%, indicating a very stable market absorption capacity. With the vacancy rate at this level, economic growth is poised to have a beneficial impact on property prices.
Hong Kong’s GDP Growth: Property Market Trends and Consumer Behavior
Hong Kong’s GDP continues to grow and the property market is not too bad
Hong Kong’s Impressive GDP Growth
The Census and Statistics Department recently announced that Hong Kong’s gross domestic product (GDP) grew by 3.3% year-on-year in the second quarter of the year. This growth surpasses market expectations of 2.8% and marks a notable increase from the previous quarter’s 2.8%. Additionally, the GDP rose by 0.4% quarter-on-quarter, indicating a resilient economic performance despite external challenges.
However, amidst this positive economic indicator, private consumption expenditure witnessed a downturn, declining 1.6% in the second quarter after a 1.2% increase in the first quarter. This paradox illustrates a disconnect between the macroeconomic data and the everyday experiences of Hongkongers.
Consumer Sentiment and the Retail Industry
Despite the positive GDP numbers, many residents express concerns about the local economy. This sentiment is largely influenced by a slump in the retail sector, with a noticeable number of restaurant closures and vacant shops that are hard to rent. Consequently, many citizens feel pessimistic and anxious about their economic futures, leading to reduced private consumption.
Interestingly, while local consumption has weakened, Hongkongers continue to travel abroad and increase their spending in the northern regions. This trend suggests that, despite challenges, the purchasing power of residents remains strong, which should translate into improved quality of life rather than declining circumstances.
The Structure of Hong Kong’s Economy
It’s crucial to note that the tourism and catering sectors do not constitute a significant portion of Hong Kong’s GDP. Instead, financial services, insurance, professional services, and trade/logistics dominate the economic landscape. The recent focus on tourism has skewed public perception, generating concerns about the overall economic prospects that don’t align with the underlying data.
The Real Estate Market’s Challenges
The pessimism surrounding life in Hong Kong has led to a shift in consumer behavior, particularly in the property market. Many individuals prefer to rent rather than purchase properties due to fears of asset value depreciation. This apprehension, while prevalent, lacks significant grounding in the real economy.
Hong Kong’s GDP continues to thrive, wages are rising, and unemployment remains low. Property prices have seen a decline of nearly 30% from their peak. Coupled with decreasing interest rates, it would seem a prime opportunity for potential buyers. Yet, the common societal trend leans heavily towards renting.
Shifts in Rental vs. Ownership Preferences
This prevailing tendency towards renting rather than buying has led to an imbalance in the housing market. In July, Centaline recorded 2,945 leases compared to only 946 sales across first-hand and second-hand transactions. This rental market was more than three times the volume of sales, signaling an abnormal dynamic.
The significant leasing activity indicates a solid demand for housing in Hong Kong. However, the reluctance to purchase properties has led to an overall stagnation in prices. As the demand continues to lean towards renting, concerns about continuous price drops are likely to escalate, creating a cycle that’s hard to break.
A Vicious Cycle: Renting vs. Buying
This preference for renting creates a feedback loop that weakens property prices. As more individuals opt to rent, the market’s demand fails to support property values, further discouraging buyers. This cycle can lead to a significant downward spiral in the property market, affecting overall economic stability.
Income Growth and Future Prospects
On a brighter note, the real economy in Hong Kong is showing promising signs. Residents are experiencing income growth that has spurred rental prices, which have risen for three consecutive months, marking the highest levels since January 2020. If this trend persists, the burden of renting could compel many to reconsider home purchases, particularly as interest rates continue to decline.
| Economic Indicator | Q1 2024 | Q2 2024 |
|---|---|---|
| GDP Growth (%) | 2.8 | 3.3 |
| Private Consumption Expenditure (%) | 1.2 | -1.6 |
| Property Price Decrease (%) | -30 | -30 |
| Rental Growth Trend (Months) | 1 | 3 |
Market Stability and Outlook
Despite recent challenges, the vacancy rate in Hong Kong’s residential housing remains at a stable 4.1%. This metric indicates a healthy absorption capacity within the market. As long as the economy continues its growth trajectory, it’s likely that the property market will not face catastrophic declines.
Moreover, with a more stable economy, the eventual return of renters to the buying market could lead to renewed demand for properties, reflecting positively on property prices. The potential convergence of rising incomes and decreasing interest rates sets the stage for a more balanced property market in the future.
