China’s reopening set to boost Hong Kong’s property market

China's reopening will boost many sectors in Hong Kong's real estate market: real estate service companies

With China reopening and Covid rules easing, the Hong Kong property market will be on the road to recovery in 2023, according to real estate consultancy Colliers Hong Kong.

The retail market in particular will get the “best benefit,” Hannah Jeong, head of assessment and advisory services at Colliers, told CNBC’s Squawk Box Asia on Thursday.

However, there are still some potential headwinds this year that could undermine Hong Kong’s recovery, Colliers said in its latest report. These include ongoing geopolitical tensions and a possible global recession.

“We are more cautiously optimistic for 2023,” Jeong added.

“There will be various uncertainties from external factors, but the opening of the border is certainly the booster[s] for many other areas of the real estate market.”

Retail becomes first runner

According to Colliers, the retail sector – particularly the high-street shop segment – will be the “first runner” in the post-Covid recovery in 2023, both in terms of rents and prices.

“We expect an increase of about 8% year-on-year in terms of retail occupancy performance,” added Jeong.

However, she said this is still around 25% to 30% below pre-Covid levels.

Collier added in his report that despite China’s reopening over the next 12 months, local consumption will remain “a key driver” for Hong Kong’s retail market.

The Hong Kong retail market is

“The changing shopping behavior of mainlanders over the past three years may paint a new picture for the new sentiment in the retail market,” he added.

In the office sector, prime office rents will rebound by 3% this year, Colliers said – thanks to “pent-up demand from Chinese and foreign companies”.

Nevertheless, according to Jeong, the Hong Kong office market still has a high vacancy rate of 14.7%.

“But it’s not the end of the world because … compared to other benchmark cities, 8 to 10% is a generally reasonable number,” she added.

Demand on the housing market is dampening

Hong Kong property prices fell to a five-year low in October as interest rate hikes pushed up borrowing costs.

This led to “a weakening of investment demand,” Jeong said, but demand from homebuyers is still there.

“Home buyers… [have been] During this period when the market is softening, they can snag the cheaper apartments,” she added.

We don't expect any

“But in 2023, I think the interest rate will… keep going up. We see stabilization at least in the second half of this year.”

Just last month, Hong Kong hiked interest rates by 50 basis points to 4.75%, followed by the US Federal Reserve.

High borrowing costs will dampen demand in the housing market, and thus a “negative 5% to 10% downward revision” should be expected this year, Jeong said.