Hong Kong’s Turning Point: Turbulence to Transformation?

Since the return of Hong Kong to China in 1997, the Hong Kong government has depended on limiting the release of land parcels to drive up prices and maximize revenue, allowing it to maintain low taxes, which in turn attracts businesses, talent, and foreign investment. Branded as “Asia’s World City”, Hong Kong rose rapidly to become the widely accepted financial, cargo, and transport hub of Asia, and the 15th richest territory in the world per capita.

Recent Turbulence

However, the city, now plagued by memories of social unrest in 2019–2020 and the national security legislation enacted by Beijing, has dented its reputation as Asia’s financial hub.

The introduction of a strict “Zero-Covid” policy (mirroring the mainland’s approach) led to travel restrictions and some of the world’s harshest quarantine requirements of  14-21 day quarantines at one point (Wikipedia) , resulting in a significant “brain drain” of expatriate professionals and local talent from the region. The city also faces intense competition from regional hubs like Taipei, Tokyo, Seoul, and Singapore, which all aim to enhance their reputations as financial hubs.

Hong Kong’s Real Estate Market Downturn  

Historically, the city’s government has released land for development at a deliberately slow rate—designed to artificially inflate property prices and maximize governmental revenue. Today, only 24% of the territory’s land is developed, while 40% is designated as country parks, leaving 36% potentially available for future development (excluding additional land targeted through reclamation projects). Although this approach has successfully generated around 20% of government income, it has also contributed to severe housing shortages, extreme urban density, and skyrocketing property prices. The result is a city notorious for its unaffordability, where almost 200,000 residents (Reuters) are forced to live in “cage homes”—tiny, bed-sized units with an average size of 6 square metres (Reuters) enclosed by metal railings.

Financial Performance of Hong Kong

However, while the city aims to recover, the retail property market has not. The official residential Property Price Index (PPI) dropped to 284.2, the lowest level since August 2016, and down from its all-time high of 398.1 in September 2021. In Q1 alone, the PPI declined by a further 7.76% year-on-year, with apartment prices falling between 6 and 10% depending on size category. Overall, home prices have plunged nearly 30% since 2021—one of the sharpest property devaluations in the city’s history : shrinking land sale income from 20% of total government revenue to just 5%.

Hong Kong’s recovery

Despite these challenges, the city has shown signs of recovery. Tourism has returned steadily, with Hong Kong welcoming 28 million visitors year-to-date (SCMP) and hotel occupancy rates improving across the city. Furthermore, the completion of major infrastructure such as the new Kai Tak Stadium (with a 50,000-seat capacity) is enabling the return of mega-events (the venue having already hosted the annual Rugby Sevens and Coldplay’s Music of the Spheres concert since its opening in March )to Hong Kong. There have even been murmurs of a groundbreaking bid from Hong Kong and the neighboring cities of Guangzhou, Shenzhen, and Macau to jointly host the 2036 Olympic Games ( with the new Kai Tak stadium as the location for the opening and closing ceremonies and with a working committee made of business and sport officials in the city lobbying the IOC (SCMP) ).

On the financial front, business sentiment has begun to improve and is now home to the highest number of of foreign businesses enlisting. Moreover, the Hang Seng Index (the city’s benchmark) shows strong performance, with around 9% growth year-to-date ( far outperforming the FTSE and CSI 300 ) even amid fears of an impending tariff war between the US and China. Notably, Hong Kong recently hosted one of the largest IPOs globally, with Chinese battery giant CATL listing on the SEHK, reaffirming the city’s role as a vital financial bridge between China and the rest of the world. While geopolitical tensions persist, Hong Kong’s capital markets remain deep and evidently liquid, continually attracting investment into the Asian capital.

Conclusion

While challenges remain both in the city and globally, Hong Kong’s famed “ Lion Rock ” resilience and emerging signs of recovery suggest that the city is not in decline, but rather undergoing a complex transformation – one that is bound to redefine its role in Asia and on the global stage.