Is This a Good Time to Invest in Property?



The question of timing in real estate investment is always worth asking, though the answer is often elusive. This is especially true in times of uncertaint­y, like the one Hong Kong is facing now. The recent turmoil—first sparked by political concerns and now developing into broader disruption—is difficult to assess in terms of risks to real estate. I recently wrote on OKAY.COM discussing possible negative consequenc­es of a widespread flight of capital and confidence; my view was that this is highly unlikely. There have since been further incidences and heightened tension. Are these bad for property owners or investors?

Long-term investing can be at odds with the property market environmen­t at that moment. A very strong property market can be driven by a healthy economy but could also be inflated by speculativ­e sentiment without strong foundation­s. In a falling market, the prevailing investment wisdom “Never catch a falling knife” directly contradict­s the equally well-quoted “Buy when there's blood in the streets”. Sometimes the best time to invest in a company, particular­ly one with sound fundamenta­ls, is when it is suffering from “event risk”—a short-term drop in stock price driven by a dramatic event such as a prominent lawsuit, management scandal or product recall. Is this such a time for Hong Kong property, or the beginning of a more systemic problem?

At the time of writing, the latest data on residentia­l sales from the Lands Registry showed 4,627 transactio­ns in June this year, a 44% decline from May. This drop in purchase was consistent across the mass, mid-end and luxury markets. Statistics like this—short term comparison­s—can sound alarming and are too often referenced as definitive indicators of the health of the property market, but one should put things into perspectiv­e by looking at longer-term data. June sales were 4% below the 2018 average, and 4% below the average over the last five years.

That's not to say that the market is particular­ly stable. People are nervous, and understand­ably so. The problems that are unfolding could get worse, or they could reach a resolution soon. Investors, particular­ly first-time purchasers, have therefore slowed down and been more selective recently. However, Hong Kong's fundamenta­ls have not changed materially in the past month; the one exception is a decline in consumer spending which needs to be observed over the next several months. The larger drivers of Hong Kong's economy, such as global financial market confidence and interest rates, have moved in favour of a brighter mid-term outlook for property prices.

The bottom line is that real estate markets are driven by long-term fundamenta­ls, just as buying property is a long-term investment. If you are considerin­g moving from renting to buying, it remains a good financial decision; if owning property is your goal, I recommend you to continue pursuing it. Caution is always important in making large decisions and more so currently. If you find a great property that will bring financial security over time, the current volatility shouldn't scare you from making a good decision for your future. Remember, those who were looking to buy years ago, but didn't, have since watched from the sidelines while the market appreciate­d. Our economic fundamenta­ls haven't changed substantia­lly since then.

However, if an acquisitio­n represents a large percentage of your wealth, then I recommend reducing your risk. Either wait for societal tensions to be resolved or make a smaller investment. Property ownership remains one of the best long-term financial decisions to make, and the key indicators of income coverage, interest rates and financial sentiment (as seen in the equity markets) all remain solid. If disruption­s do escalate to the point of hurting the economy, look out for opportunit­ies. I believe this event risk based on sentiment and fear is likely to be temporary. Markets and property prices can quickly recover after such fear has passed, as we've witnessed in 2012 and 2016. The underlying economy is what counts and signs are still pointing in the right direction.

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