Global investors are most pessimistic on the property market outlook in Hong Kong among major Asia-Pacific locations as the city struggles to emerge from its deepest recession on record and long-running political crises.

About one-fifth of investors said they planned to reduce some of their holdings in the city, according to a survey conducted by real estate consultancy JLL. Only 4 per cent of them wanted to raise their capital allocation, while the rest would maintain the status quo.

Hong Kong had the highest number of investors with selling tendencies. In comparison, only 1 to 8 per cent of investors were looking to reduce their investment in other markets, the survey showed. The proportion of foreign investors seeking to invest more in these other markets ranged from 15 to 56 per cent.

“A relatively weak income and capital value returns outlook over the next 12 to 24 months, coupled with a subdued domestic economy, are weighing on investor sentiment in Hong Kong,” said Nelson Wong, head of research for Greater China at JLL. The longer-term views for many of them, however, have stayed largely unchanged, he added.

JLL surveyed 38 global and regional managers overseeing US$1.8 trillion of assets in the second quarter, it said. It is not clear if the controversial national security law, which was first mooted in May and became effective on June 30, had an impact on the survey results.

The survey asked for any changes to their investment strategies in mainland China, Australia, India, Japan, South Korea, Singapore and other Southeast Asian countries, amid the Covid-19 pandemic.

In Hong Kong, prices of offices, flatted factories and retail premises fell by 10 to 15 per cent from their peaks in May 2019 to June this year, according to government reports. The slide prompted the Hong Kong Monetary Authority (HKMA) to roll back its market-cooling measures last month
for the first time since 2009.

While Covid-19 has hurt economies across the board, Hong Kong has had to contend with the fallout from the national security law. The legislation has stoked geopolitical tensions between China and many western governments, triggering sanctions and export bans.

These issues are likely to put further pressure on Hong Kong’s real estate market
as business confidence weakens, the HKMA said in its August 19 statement.

The capital values of high-street shops will drop by 35 to 40 per cent this year, while those of grade A offices will fall by 20 to 25 per cent, according to JLL forecasts. Prime warehouses will suffer a 5 to 10 per cent loss, it said.

“Our interactions with clients reinforce the view that investors will continue to seek defensive locations and sectors where the rental collection experience has been positive,” said Stuart Crow, head of capital markets for Asia-Pacific at JLL. “Japan and Korea remain high on the preferences for clients, as do sectors such as multifamily, non-discretionary retail and logistics.”