Will Omicron Restrictions Cause a Hong Kong Exodus?

New Covid restrictions could limit a rising economy and jeopardise Hong Kong’s financial status, as the government adopts a ‘zero-Covid’ approach to the Omicron variant that could see borders remain closed until 2024.

After the struggles of 2020, the recovery of both the economy and property market – while slow – was welcome news for Hong Kong investors.

Property transactions throughout the start of 2021 were as high as they’d ever been, while unemployment continued to fall towards the end of last year, hitting 3.9% by December after peaking at 7.2% in 2020. 

Now, the government’s sudden implementation of restrictions seems set to halt this rising performance. 

Despite the property market’s rise in transactions over the last year, it remains an expensive proposition compared to other global markets – a factor that translated into rental performance and left many investors looking to countries such as Britain for their next asset. 

According to research, the number of overseas landlords in the UK hit a five-year high in 2021, enticed by top investment locations.

Now, according to a report from the city’s European Chamber of Commerce, these new restrictions on international travel and social activities are predicted to stifle the baseline growth of 3% predicted by multiple economists, while further impacting the local property market.

Although previous lockdowns in Hong Kong were gradually eased over several months, the limited effectiveness of local vaccines has forced most of the region to reconsider long-term travel guidelines.

Now, the most likely scenario is that Hong Kong remains closed until China can kick start its vaccination program, which the country believes could take until late 2023 or even early 2024.

This has raised concerns not only for the economy, but the city’s status as a global financial hub. 

Related: Hong Kong Property Market Roundup

The report suggests that being closed for such a long period of time could see a ‘cascade effect’ of businesses leaving the city, an ‘exodus of foreigners, possibly the largest that Hong Kong has ever seen and one of the largest in absolute terms from any city in the region in recent history’.

While Hong Kong has succeeded in keeping the virus in check, it remains one of the most isolated locations in the world due to intermittent, strict lockdowns.

This has accelerated a ‘brain drain’ from the city and, if the scenario above was to take place, could mean a relocation of global firms from Hong Kong to nearby Singapore, Seoul or even mainland China. 

In this scenario, Hong Kong’s position as a business hub and ability to contribute to the wider region’s economy would be jeopardised.

The ripple effect of this could even be catastrophic for the city’s educational system, where the departure of international students and talent would diminish the city’s currently world-class universities.

Other scenarios have also been outlined within the report, including the potential for uncontrolled outbreaks in mainland China and in Hong Kong itself. 

While the former would see Hong Kong sealing itself off from China and reopening borders to the rest of the world, the latter would essentially make restrictions meaningless and have a lethal impact on the elderly population, many of which have not been vaccinated.

Although the Chamber has made recommendations for accelerating vaccinations and shortening quarantines, it also mentions that foreign businesses should act under the assumption that Hong Kong will be ‘semi-closed’ for international travel between the next 1 – 3 years.