Hong Kong investors shifting capital into Southeast Asian property markets

Over the past four months, the city of Hong Kong has been rocked by a series of massive protests. The conflict began when Hong Kong Chief Executive Carrie Lam introduced the Extradition Law Amendment Bill — a piece of legislation which would allow Hong Kong citizens accused of crimes to potentially be extradited to China. This move by the government was met by massive outrage and resistance from the pro-democracy protesters and sparked a series of massive rallies and demonstrations — drawing in crowds as large as two million people.

As the clashes between the two factions continue to paralyze the Hong Kong’s economy and even threaten to boil over into greater violence, investors are now pulling out their capital from Hong Kong and are looking for other attractive investment opportunities within the region. Some of the main beneficiaries of this reshuffling of capital are the Southeast Asian property markets.

A brief timeline of the anti-extradition law protests
As mentioned, the trouble in Hong Kong all began on 03 April 2019, when Carrie Lam introduced the Extradition Law Amendment Bill. Basically, the proposed law would allow Hong Kong to potentially extradite any of its citizens accused of crimes to China for trial. This bill was met with massive resistance and backlash from Hong Kongers who claimed that the law is an infringement of their democatic rights.

The first wave of major protests
On  June 9 — two months after the introduction of the bill, the first protests began in Hong Kong. Authorities estimated that over one million people took part in the peaceful demonstration. This rally was immediately followed by another protest on June 12. Finally — in an effort to appease the protesters, Carrie Lam announced on June 15 that she would indefinitely delay the passage of the bill.

Despite the announcement by Lam, the protesters were not content. In fact — just a day after, an even larger rally was held. The two million people who joined the June 16 protests collectively called for the resignation of Lam and the complete withdrawal of the bill. Two weeks later in July 1, rallyists stormed the parliament calling for the bill to be junked. On July 9, Lam reiterated that the bill is dead indefinitely. However, she refused to withdraw the bill completely.

Violence erupts
On July 21, violence erupted as mob members who were sympathetic to Beijing attacked commuters in the Yuen Long underground station. In response to this incident, rallyists staged even more demonstrations against both Hong Kong and China. China responded on August 6 with a strongly worded statement, warning the protesters “not to play with fire” and “not to underestimate the resolve of the central government.”

In an act of defiance against Beijing, the pro-democracy movement in Hong Kong staged a massive protest inside Hong Kong’s international airport on August 12. The demonstration essentially paralyzed the airport — leading to hundreds of flights being cancelled.

The bill is dead
Finally — on September 4, Carrie Lam announced that she would withdraw the extradition bill permanently. Despite this announcement, the protests still continue to this day. The protesters are now asking — among other demands — for the right to vote in the next election.

(NOTE: For a more detailed timeline, see “Hong Kong: Timeline of extradition protests” by BBC News)

Effects on Hong Kong’s economy
The past four months of massive pro-democracy protests have taken a heavy toll on Hong Kong’s economy. Once a robust global business district, the city’s economy is now teetering on the brink of recession. An anecdote from The New York Times claims that the revenue of the establishments affected by the protests fell by as much as 90% (SEE: With No End to Unrest in Sight, Hong Kong’s Economic Pain Deepens, The New York Times).

The protests have also significantly affected Hong Kong’s property markets. To be more specific, asset prices and occupancy rates took a big hit in the last four months. As a result, Hong Kong property investors have begun pulling out their capital from the city (SEE: Hong Kong investors shift cash into SE Asian property markets, Manila Bulletin).

The Philippine real estate industry
The Philippine real estate industry is in a prime position to take advantage of and capitalize on this recent boom in Southeast Asian property demand. The country’s strong competitive positioning is anchored on three key macroeconomic variables: (1) Robust economic growth potential, (2) Expansionary monetary policy, and (3) Increased big ticket government infrastructure expenditure.

1. Robust economic growth potential. Despite a disappointing 2019 performance, the Philippine economy remains to be one of the fastest growing economies in Asia. This trend is not expected to end any time soon as economists project the economy to grow at a rate of 5% to 6% annually until at least 2032. In fact, estimates show that the Philippine economy will be worth at least $1 billion by that time. The country’s robust growth is expected to continue to drive the demand for real estate within the foreseeable future (SEE: PH economy still on pace to hit 2019 government targets — ADB, PropertyAccess).

2. Expansionary monetary policy. Bangko Sentral ng Pilipinas (BSP) Governor Ben Diokno has hinted at least five more rate cuts before 2020 ends. When it is all said and done, interest rates in the country are expected to fall by 125 basis points before 2021 comes. This move will infuse some much needed liquidity in the capital markets, which would positively impact both real property prices and demand (SEE: BSP cuts key rates; More to come in the near future, PropertyAccess).

3. Increased big ticket infrastructure expenditure. The current administration’s “Build Build Build” program will significantly improve the country’s infrastructure — which in turn will lead to higher property prices in the surrounding areas. Some of these key projects include the (1) Bulacan International Airport Project, (2) Metro Manila Subway System, and (3) Manila Malolos Clark Railway (SEE: Infra expenditure to GDP ratio doubles to 5.5% in 2018, PropertyAccess).