The Year of the Ox, a hardworking and methodical animal, has the makings of being a positive and productive period in Hong Kong. Like this zodiacal projection, we anticipate that our hard-working population will be rewarded as it emerges from a near two-year recession, with firm growth as Mainland China starts to kick on, recommencing positive economic momentum.
Hong Kong SAR is fortunate to have its economy joined at the hip to Mainland China’s as it is the first major global economy to have entered the post-COVID period, having registered YOY GDP growth of 4.9% in Q3 2020, giving it the distinction of ranking as the best-performing economy in the world. And while Hong Kong’s real GDP growth for 2020 is forecasted to be -6.1%, due to weak domestic and external demand, it is now clear that its close linkage with China will be major factor in propelling it into the post-pandemic period. Oxford Economics are forecasting 2021 to be a year of further stabilisation/recovery for Greater China - with China and Hong Kong’s GDP forecasted to grow by 7.8% and 4.4% YOY respectively.
What does 2021 hold for HKSAR?
While HKSAR inbound tourism and hospitality markets are unlikely to see immediate recovery in H1 2021, the government’s citywide immunisation programme may create conditions for return of some inbound tourism within the next 12 months. The groundwork for this was laid in June when the government approached a number of countries about initiating travel bubbles, starting with Singapore. However, the return of Mainland China’s visitors, who accounted for 80% of all visitors in 2018, is an even more critical factor with respect to returning to the former economic “normal”. While discussions with Guangdong Province about inbound visitors have recently been more positive, exact timing remains uncertain.
Mainland China developers to dominate land sales
China ended 2020 with its domestic residential market emerging largely unscathed from the pandemic with sales achieved by China’s top 20 developers recorded at robust levels from Q1 to Q3. China’s top 20 developers invested RMB1.5 trillion in domestic land acquisition from January to September 2020, a 200% increase compared with RMB500 billion invested in the same period in 2015.
In 2021, we anticipate stronger appetite for investing in HKSAR real estate by mainland players, with local-based private investment funds also waiting in the wings, in anticipation of an investment market recovery. HKSAR, especially now having entered the post-National Security Law implementation period, looks increasingly attractive to mainland investors. Effectively, their placement of investment capital in the HKSAR has now been de-risked, especially against the backdrop of Australia, UK, Canada and United States now being “off limits”. Their increasing appetite for Hong Kong real estate assets was borne out by the fact that between 1st January to 3rd December 2020, PRC-based participants contributed HK17.7 billion, or 70.6% of the total premium of HK24.9 billion paid by participants in 10 successful government land tenders. Most active mainland participants were China Vanke, China Overseas Land & Investments, Agile Group, Kaisa Group, and China Mobile.
Energising from new infrastructure
HKSAR is now one of the most service-oriented economies in the world, with the sector constituting 93.1% of its GDP. A key factor propelling economic growth is the government’s willingness to invest heavily in major infrastructure geared to increasing the mobility of both the local workforce and visitors, and their access to international ports of departure and boundaries with the GBA.
The Northern Connection of the Tuen Mun Chek Lap Kok Link, connecting Tuen Mun South to the HKZMB, Hong Kong Port and HKIA, was commissioned on December 27, 2020 with positive implications for real estate markets in Tung Chung, Tuen Mun and the larger Northwest New Territories. Similarly, the scheduled year-end 2021 completion of the Shatin Central Link Phase 1 sub-phase 2 section, following the commissioning of the SCL Phase I sub-phase 1 earlier in 2020, means that the benefits of improved connectivity which will launch the entire SCL Phase I will provide to greater Kowloon City and CBD2 area are not far off.
Financial shot in the arm
The proposed Lantau Tomorrow Vision (LTV) is undoubtedly HKSAR’s single most important new infrastructure project for the 2021-2035 period. Legco’s new amenability to approving the HKD550 million in funding is very significant. If determined to be feasible, this massive, transformational project, which at an estimated cost of HK624 billion, will be the most capital-intensive project ever launched in HKSAR.
Not only will the LTV, when fully developed, create a new metropolitan area in the East Lamma Channel, but it will also connect Hong Kong Central District to Qianhai in Shenzhen via a proposed new network of roads and rail lines, which themselves will collectively constitute an entirely new nexus of connections between Hong Kong Island, LTV Islands, Sunny Bay, Tung Chung, HKIA Aerotropolis complex, Hong Kong Port and the Northwest NT. Apart from the benefits of improving connectivity, LTV will also provide a great tonic for Hong Kong’s economy, and one that is likely to continue to generate employment and development opportunities for several decades to come.