(May 22): Hong Kong real estate stocks have had a tough 12 months. Anti-government protests delivered the first blow when they escalated last June. Then the coronavirus outbreak crippled the city’s economy. Now, Beijing’s surprise plan to impose a national security law is spurring a new wave of selling.
It’s some wave: Wharf Real Estate Investment Co. plunged by a record on Friday, while Sino Land Co. and Link REIT were both headed for their worst day since 2008. New World Development Co. was poised for its biggest retreat in more than three years. The losses helped drag down the MSCI Hong Kong Index by 5.4%.
It may be that investors are concerned that the new law will trigger even more violent protests. Certainly the economy is already suffering, while developers have turned more cautious on the outlook for property. Hong Kong’s government this week sold a large residential plot at a cheaper price than expected, while last week it failed to sell another big site after bids failed to meet its reserve.
Home prices in the world’s priciest city for real estate have so far held up well amid the economic distress, declining barely more than 1% since January. But the prospect of prolonged street protests doesn’t augur well for home sales, shopping or office rents.
According to Bloomberg Intelligence analysts Patrick Wong and Michael Tam, Hong Kong landlords could see a rise in vacancy rates for commercial properties if unrest continues for an extended period.
There may also be concern that a new national security law would prompt some property owners to shift assets out of the city. Hong Kong had long been seen as an overseas haven for China’s rich to park cash. Perhaps now the former British colony will be seen as just another Chinese city, and too close to Beijing’s scrutiny for comfort.
A third risk is the city becomes something of a battleground between the China and U.S., which may also spur outflows. U.S. President Donald Trump said Thursday that the U.S. will “address very strongly” any Hong Kong crackdown. Two U.S. senators also proposed a bipartisan bill that would sanction enforcers of the proposed law, while Secretary of State Michael Pompeo has delayed an annual report on whether Hong Kong still enjoys a “high degree of autonomy” from Beijing.
