Major Real Estate Agencies to Slim Down
On Nov. 11, the Hong Kong government announced that the economic contraction in the third quarter expanded to 4.5 percent and again lowered its full-year economic forecast to a contraction of 3.2 percent, which is worse than expected. Financial Secretary Paul Chan Mo-po said the outlook for Hong Kong’s economy is not that optimistic.At the time of the economic downturn, the Hong Kong property market also accelerated its decline in business. Leading real estate agencies in Hong Kong, Centaline Property and Midland Realty are planning to significantly reduce their manpower and the number of high street offices.
The founder of Centaline Property, Shih Wing-ching, told a local newspaper that the current property market transaction volume is only half of the normal and one-third of when it was at its peak period. He expects to close about 200 branches-half of current Centaline’s branches in Hong Kong.
Po Siu-ming, CEO of Midland Realty, told the Epoch Times that the company had a net outflow of about 400 employees from August to October.
He explained: “Because of the poor market conditions, many employees can’t earn a decent living. A lot of them can only manage to have an income of HK$7,000 to 8,000 (approx $1,000) a month. If that persists, and they can hardly survive, they will leave their positions and look for other jobs.” As for the number of branches, Po said that he did not set a target yet but would first try to ask the landlords to significantly reduce the rent. If that fails, he will need to “bite the bullet” by not renewing the lease and close the relevant branches. He revealed that since August, it has already closed more than 20 to 30 branches.
Earlier, on Nov. 4. Centaline’s Shih Wing-ching mentioned in his local newspaper’s column that it is estimated there are about 30,000 active real estate agents in the market. However, with the current market conditions, there is only enough scope for 23,000.
Samuel Tse Ka-hei, an economist at DBS Bank in Hong Kong, told the Epoch Times on Nov. 15 that in recent months, the property market in Hong Kong has performed poorly. In October, property prices fell by 1.4 percent month-on-month, and transactions were not as good as expected. It is normal for real estate agencies to lay off staff or close branches in response to market conditions. This reflects both the current economic situation and the industry’s view of the uncertain economic outlook.
Gary Ng Cheuk-yan, senior economist for Asia-Pacific at Natixis, told the Epoch Times on Nov. 15 that due to the insufficient relaxation of the Hong Kong government’s anti-pandemic policy and the rise in interest rates, the short-term outlook for Hong Kong’s enterprises and real estate market will still tend to be pessimistic. And weak confidence in the private sector will continue the decline in overall investment spending during the fourth quarter.
Samuel Tse also said that as the external interest rate hikes continue, and the economic prospects of China and Hong Kong are uncertain, enterprises and real estate developers will become more cautious in investment. And it is expected the downward trend in investment will continue.
COVID-19 Restrictions and Manpower Exodus Cause Negative Economic Impact
Although the brain drain has created breathing space for employment, it has planted a “booby trap” for the Hong Kong economy, and this impact is not just reflected in the property market.Tse analyzed and pointed out that even though the Hong Kong government loosened its pandemic prevention measures in the second quarter (April 21), private consumption expenditure in the past two quarters has not improved significantly. One of the factors is the brain drain. The decline in the overall population has led to a decline in total consumption capacity.
According to official information released by the Hong Kong government, Hong Kong’s private consumption expenditure in the second quarter remained largely unchanged year-on-year in real terms. The same was also recorded in the third quarter, which was also largely unchanged compared with the same period last year.
Since the implementation of the Hong Kong National Security Law in 2020, Hong Kong has recorded a net outflow of the population for three consecutive years. The net loss increased from 27,000 since mid-2020 to 113,000 until mid-2022.
Finance, and insurance, the two pillar industries in Hong Kong, have experienced a significant brain drain. According to the Hong Kong Census and Statistics Department, employment in both the financial and insurance sector fell to 233,000 in the second quarter of this year from 239,000 in the fourth quarter of 2019.
Andy Luk Kwok-kwun, vice president of the Hong Kong Institute of Human Resource Management, said in a radio program on Oct. 13 that the brain drain in Hong Kong is serious. The Institute conducted a “big resignation wave” survey from August to September this year and found that managers who resigned on immigration grounds totaled 37 percent, and 24 percent for the other rank-and-file employees.
Samuel Tse continued, from the data point of view, there is no obvious sign of the emigration trend being on the retreat, and its impact on the property market and economy at large will continue in the short term. However, in the medium and long term, he believes that with the end of the “zero-COVID” measures, there might be a return of talent, and the prospects may not be that pessimistic.
Hong Kong to Face Economic Challenges
As for the challenges that Hong Kong’s economy will face, Gary Ng pointed out that since central banks around the world still need to raise interest rates to combat inflation, whether Hong Kong’s economy can recover in the short term depends on whether Beijing is willing to relax the strict zero-COVID policy for economic growth and relax restrictions on various industries. While there are growing signs that easing can be expected, there is still a long way to go before full normalization.He continued that in the medium term, Hong Kong faces competition with other financial centres in the region. In addition to the outflow of talent, the mainland’s policy of focusing its effort on supporting Shanghai, plus the competition from Singapore, Hong Kong’s future economic growth will be seriously challenged.
‘CCP Will Accelerate the Development of Offshore RMB Business’
Mike Sun, a senior investment consultant in the United States, pointed out that during the meeting between Xi Jinping and Biden recently at the G20, the two sides have already laid down their own red lines, and it is expected that China and the U.S. will enter a brief period of truce. That should be helpful to Hong Kong, as the geopolitical pressure will ease temporarily.In addition, although the CCP authorities still insist on “dynamic zero-COVID,” it is more a “superficial act.” All regions on the mainland have indeed implemented the “one city, one policy” practice. This is supposed to be applicable to Hong Kong too. In the future, Hong Kong’s flexibility granted in pandemic prevention measures will become even more flexible, a stark difference from previously.
As for the impact of interest rate hikes, Mike believes that U.S. inflation has fallen recently, and the market expects the Fed’s interest rate hikes to slow down soon. If the scale of the Fed interest rate increases in December is favourable and according to expectation, it would be a relief of another “alarm” for Hong Kong’s economy.
However, Mike also pointed out that the CCP will take this opportunity to further tighten its grip on Hong Kong and accelerate the development of offshore RMB business here. “The CCP wants to accomplish what it is doing,” he said.
As of Nov. 15, the Hang Seng Index of Hong Kong stocks rose for three consecutive trading days, with a cumulative increase of 2,262 points, and the KSE Index rose 20 percent. It was also accompanied by a turnover of over HK$200 billion ($25.6 billion) for two consecutive trading days. The exchange rate of the Hong Kong dollar against the U.S. dollar also strengthened and closed at 7.8192 on Nov. 15.
