When the UK government decided to hand Hong Kong over to the Chinese authorities there were serious concerns about the possible long-term consequences. Despite an array of political agreements many believed it was just a matter of time before the Chinese authorities turned the screw. Just recently the Hong Kong administration (which currently has its own legal system) announced plans for an extradition treaty with China which would allow the Chinese authorities to detain suspected criminals on Hong Kong soil. While the backlash from the public has caused a delay in the legislation (no new timetable has been set) there are concerns going forward.
Hong Kong property market
Hong Kong is a property market which perfectly reflects an environment of growing demand and ever lower supply. Historically property prices have performed admirably, although there has been a short term downturn recently, but some experts believe the political situation will not help in the short to medium term. Should we expect the Hong Kong property market to take a hit as a consequence of political uncertainty?
It is fair to say that the uncertainty, and the backtracking on historic agreements, has not gone down well with the voting public. We have seen, and continue to see, violent clashes between demonstrators and police. However, history shows that political uncertainty in Hong Kong tends to be overlooked with markets perhaps resigned to the fact that China will forever gain creeping control.
Chinese economic woes of more concern
It is fair to say violent clashes between demonstrators and the police do not make for good TV viewing for the Hong Kong authorities. Looking back at similar situations there has been minimal impact on Hong Kong property prices with many investors waiting in the wings if supply were to be made available. Looking forward, one of the major concerns going forward would appear to be the Chinese economy.
We know from official figures that Chinese investment in Hong Kong real estate is huge. Many estimate that nearly two thirds of Chinese outbound real estate investment finds its way to Hong Kong. So, if the Chinese economy were to catch a cold this may have a massive impact upon Hong Kong property prices.
The changing environment
It is fairly obvious that the Hong Kong property market, and Hong Kong itself, is going through a major change at the moment. Concerns regarding Chinese creeping control, and a willingness to break previous agreements with the UK government, is a concern. In many ways it is the impact this is having upon Hong Kong’s reputation as Asia’s top financial centre which is focusing the minds of many investors. This historic reputation is an integral part of the Hong Kong economy and one of the major reasons why the area attracts huge investment. If its position as Asia’s top financial centre was to weaken and fade this would not be good news.
Interestingly, investors seem to take the constant bickering between China and Hong Kong in their stride. Indeed, history shows a strong correlation between the Chinese economy and Hong Kong property prices. So, there are certainly more concerns about the Chinese economy, and the future funding for investors, than there is about the ongoing extradition controversy or any other political changes going forward. The cackhanded approach to the extradition treaty, which has caused a major backlash from Hong Kong voters, may well be an indication of how China plans to strengthen its grip on the region.