Boston, MA -- (SBWIRE) -- 12/12/2012 -- The Hong Kong Real Estate report examines the commercial office, retail, industrial and construction segments throughout the country in the context of a cooling market. The report covers rental market performance in terms of rates and yields over the past 18 months and examines how best to maximise returns in the commercial real estate market, while minimising investment risk and exploring the impact of the necessary contraction in the property market.

According to our most recent round of in-country interviews which were conducted in July 2012, rents in Hong Kong could see a subdued second half of 2012 in all commercial sub-sectors, as the economy continues to exhibit increasing signs of weakness. Also, we are seeing strong signs of a marked slowdown in the retail sector which, coupled with corrective pressure in the property market, means that consumption momentum should slow further. We consequently see fit to maintain our bearish outlook on the economy and see real GDP growth coming in at 2.2% in 2012, versus consensus expectations for 3.0% expansion. We expect this economic weakness to extend into 2013, with economic growth seeing a marginal acceleration to 3.5%.

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Key Points

- Hong Kong remains at the top of a number of lists for real estate investment and rental levels, particularly in the office sub-sector. Its existing reputation could help to keep rents from dropping too far or too quickly.
- The Independent Commission Against Corruption's recent crackdown on corruption in real estate policies is in its early stages, and the overall effects on the market are for the most part yet to be seen. However, it is likely that any long-term developments relating to recent allegations will pose a downside risk to major developers in Hong Kong, as well as to the potential for new investment.
- Hong Kong's property market is undergoing a necessary correction. The government is likely to ramp up the supply of land, while an expected economic downturn will impinge on demand. We believe the effects of a corrective real estate market will duly place considerable stress on the economy, with private consumption likely to be the hardest hit.
- Activity in Hong Kong's construction sector has surprised on the upside in the first quarter of 2012, despite the general decline in the appetite for residential construction and the weakness in the Chinese economy. The government's plan to provide more land for housing appears to have worked, with real estate transactions and residential building construction activity reaching record highs in recent months. Combined with the implementation of several large-scale transport infrastructure projects, construction activity in Hong Kong looks set to be more robust than initially anticipated. As a result, we have significantly revised up our 2012 forecasts, with construction real growth now predicted to reach 7.1% (previously 2.3%).

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