Advertisement
Singapore markets closed
  • Straits Times Index

    3,224.01
    -27.70 (-0.85%)
     
  • Nikkei

    40,168.07
    -594.66 (-1.46%)
     
  • Hang Seng

    16,541.42
    +148.58 (+0.91%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Bitcoin USD

    70,741.58
    +1,942.11 (+2.82%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • S&P 500

    5,260.00
    +11.51 (+0.22%)
     
  • Dow

    39,821.43
    +61.35 (+0.15%)
     
  • Nasdaq

    16,398.68
    -0.84 (-0.01%)
     
  • Gold

    2,241.40
    +28.70 (+1.30%)
     
  • Crude Oil

    83.07
    +1.72 (+2.11%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • FTSE Bursa Malaysia

    1,530.60
    -7.82 (-0.51%)
     
  • Jakarta Composite Index

    7,288.81
    -21.28 (-0.29%)
     
  • PSE Index

    6,903.53
    +5.36 (+0.08%)
     

Real estate markets in Singapore, Hong Kong go their separate ways — but for the better

For the past two years, there has been less of a correlation between Hong Kong's and Singapore's office and residential prices (Singapore city pictured)
For the past two years, there has been less of a correlation between Hong Kong's and Singapore's office and residential prices (Singapore city pictured)

For the past two years, there has been less of a correlation between Hong Kong's and Singapore's office and residential prices (Singapore city pictured)

There is an adage that some still subscribe to — that the Singapore property market lags Hong Kong’s by about two quarters. While that could have been the case, it is also not entirely correct because insofar as office prices in HK dollars are concerned, since 2005, we have had only one instance in which prices in Hong Kong led those in Singapore by two quarters. That was in 1Q2009, when prices in Hong Kong started to rise six months before those in Singapore (see Chart 1).

Chart 1
Chart 1

The same is observed for the luxury non-landed private residential segment. Prices in Singapore and Hong Kong were positively correlated from 2000 to 4Q2014. Thereafter, prices in Hong Kong surged ahead while prices in Singapore went sideways (see Chart 2). Some may subscribe to the view that Singapore had put in place a string of macroprudential cooling measures that slowed market activity. However, Hong Kong, too, had put in place similar policies, and in November 2016 and April this year, the Special Administrative Region (SAR) added further property cooling measures, including raising the stamp duty on homebuyers to rein in prices.

For the past two years, there has been less of a correlation between Hong Kong’s and Singapore’s office and residential prices. Why is that?

ADVERTISEMENT

Grade-A office sector

The reason Hong Kong office prices started to rise from mid-2014 is that after Chinese Premier Li Keqiang announced the establishment of the Hong Kong-Shanghai Stock Connect in April 2014, there was a flurry of activity by Chinese financial services companies to set up offices in the territory. This link-up gave Hong Kong an overnight uplift in office demand. Just prior to the announcement of the Hong Kong-Shanghai Stock Connect investment channel, the vacancy levels in Hong Kong and Singapore were almost comparable (see Chart 3). The impending supply in Hong Kong was greater than in Singapore at that point in time. However, rents and prices of Grade-A office space in Hong Kong very likely increased since November 2014, owing to demand spurred by the implementation of the stock market connection.

Chart 3
Chart 3
Chart 4
Chart 4

The tenant profile and office space footprint in both cities are noticeably different. For example, tech firms generally take much less space in Hong Kong than in Singapore. Insofar as demand for office and business park space goes, Western tech companies have a much larger office footprint in Singapore than in Hong Kong. In Hong Kong, Chinese tech firms have a larger presence than their Western counterparts (see Table 1).

Table 1
Table 1

After the Hong Kong-Shanghai Stock Connect announcement, there was active leasing demand from mainland Chinese and Taiwanese financial firms in Hong Kong. In Singapore, apart from Bank of Communications taking up about 5,000 sq ft of space at Singapore Land Tower in Raffles Place, these large mainland Chinese financial firms have no official presence in the city state (see Table 2).

Table 2
Table 2

Moreover, we have observed that mainland Chinese non-financial firms have also raised their level of activity in terms of leasing demand. For HNA, a Chinese conglomerate, its presence in Singapore is only felt through its shipping subsidiary SEACO, which occupies about 9,000 sq ft at 80 Anson Road. However, SEACO’s office premises were let before the Hong Kong-Shanghai Stock Connect announcement and is not included in our analysis (see Table 3). For Singapore, other than tech companies, since 2014, new lettings were mainly for office space expansions by marketing and advertising, shipping, disruptive technology companies (Grab) and co-working space providers. In the case of the latter, they are still expanding aggressively both in Hong Kong and Singapore, with many of the co-working space operators from the West opening up in both cities. Take the example of US co-working space operator WeWork. In Hong Kong, WeWork has taken up close to 150,000 sq ft of office space, while in Singapore, it could soon occupy close to 100,000 sq ft.

Table 3
Table 3

For Singapore, a sample of the leasing activity by larger space office users in the non-tech sector since 2014 is shown in Table 4.

Table 4
Table 4

In short, since 2014, new Hong Kong office space demand has been coming mainly from China-related companies and Western co-working space providers. In Singapore, new demand is coming from tenants that are often Western and Japanese companies — both tech (including social media advertising and co-working) and non-tech. For the latter, they are often shipping companies that seek to consolidate their operations into a single Grade-A office location.

Residential

The residential markets in both Singapore and Hong Kong have seen similar property cooling measures (see Table 5).

Table 5
Table 5

If we include the recent tightening of bank financing to developers who offer loans to buyers, there are in fact more measures and conditions laid down in Hong Kong than in Singapore. Yet, non-landed residential property prices in the SAR continued to trend up strongly while the Singapore market languished.

Prices in the Hong Kong residential and office markets have continued on an upward trajectory as a result of the extra push from Chinese money that accompanied the Hong Kong-Shanghai Stock Connect announcement.

Conclusion

The weakening of a correlation between prices (and rents) in Singapore and Hong Kong’s main real estate sectors now presents an opportunity for investors to diversify across these two markets. In the past, the strong linkage in performance would not have given investors — particularly institutional investors — the ability to reduce their country risks. Today, with the two economies spurred by different sets of drivers, an effective diversification strategy emerges.

Alan Cheong is the head of research for Savills Singapore.

This article appeared in The Edge Property Pullout, Issue 789 (July 24, 2017) of The Edge Singapore.

Related Articles From TheEdgeProperty.com.sg