An influx of mainland Chinese taking advantage of a new visa program to work in Hong Kong is helping buoy rents in the city to the highest level in almost two years, reversing a downward trend that started during the pandemic.
Hong Kong saw its population grow by 2%, or 152,000 people, in the past year to June from a year earlier, with government partly attributing the rise to the different talent attraction programs. Almost 26,000 applications for the Top Talent Pass Scheme have been approved as of June, according to government data. The program was introduced in October after the labor force shrank by 140,000 in recent years over a deepening political crackdown and strict pandemic measures that kept the border closed until February. Most of the applicants are from mainland China.
As a result, home rents had softened in one of the world’s most expensive markets but have rebounded since the border with mainland China reopened. Rents rose for six straight months to the highest since late 2021 in July, according to Midland Realty.
The real estate agency expects rents in 2023 to increase as much as 10%, the biggest growth in 11 years as the inflow from the mainland continues. A July report from Bloomberg Intelligence estimates that rentals in Hong Kong could rise at least 5% this year thanks to demand from mainland Chinese moving to the city.
Leasing demand from mainland Chinese “is just ever-increasing since the border opening,” said Derek Sun, managing director at Signature Homes, a long-term leasing and serviced-apartment brand owned by Sun Hung Kai Properties Ltd. “I think the biggest change since the border opening is the increase in the young talent because of the Top Talent Pass Scheme that the government has been pushing.”
Mainland Chinese contribute 40% of Signature Homes’ new rentals now, compared with 25% before the pandemic. Rents for smaller apartments have risen between 5% and 15%, while luxury apartments with three or four bedrooms can command rents 20% more than during the pandemic, said Sun.
The Top Talent Pass Scheme offers two-year work visas and is open to applicants who have made at least HK$2.5 million ($318,488) in the previous year as well as graduates of the top 100 universities globally with a minimum three years’ work experience in the last five. In May, the government expanded the professions that can apply for other talent programs to 51 from 13.
In west Kowloon’s Nam Cheong, a neighborhood that has become more popular with mainland Chinese, 60% of rental deals since June were signed by such tenants, according to Roy Yee, a senior district sales manager at Midland Realty for the area. Among his clients, around one out of three came to Hong Kong via the Top Talent Pass Scheme, he added.
Another factor that is supporting the rental market is the weak home-sale market, as more Hong Kong residents prefer to rent on expectations that house prices will drop further as interest rates rise, said Joseph Tsang, chairman of JLL in Hong Kong.
Property developers and agents are also counting on these middle-class newcomers to eventually prop up home sales too. In addition to the population outflow, higher interest rates have further dampened appetite for home purchases. CK Asset Holdings Ltd., one of the city’s leading developers, is selling apartments at the lowest price in seven years.
“The property market will be challenging in the next couple of years with high supply but little investment demand,” said Patrick Wong, an analyst with Bloomberg Intelligence. External demand from people like those coming to Hong Kong via new work visa programs will help a lot, he added.
Still, any boost to home prices is tempered by the fact that many of the newcomers are not necessarily committed to staying in the city in the longer term, making their impact much more palpable in the rental market. Yee said many of his clients who signed two-year leases also don’t have a clear plan in the city.
“Most of them were ambiguous about how long they will stay here,” he said. “They are only testing the waters for now.”
--With assistance from Ka Ho Cheuk.