Hong Kong Properties Set to Become the Most Popular Market for PRC Investors around the Globe
Local Players Urged to Develop New Strategies to Cope with the Changing Landscape
Hong Kong, 25 April, 2017 – Colliers International (NASDAQ and TSX: CIGI) releases their latest report revealing Hong Kong as one of the most attractive recipients for Chinese outbound direct investment because of its high market transparency, strong financial support for property development and limited government intervention. With increasing PRC investors and developers setting their sights on Hong Kong’s property market in recent years, local players have to develop new strategies to cope with the changing landscape in order to maintain their long-term presence. PRC developers’ aggressive bidding has put local developers on the defensive with a diminishing market share
The growing PRC outbound investment in Hong Kong has recorded an all-time high in Q1 2017 with a total transaction volume surging 213% YOY to HKD36.1 billion. Compared to the PRC property market, Hong Kong enjoys less government intervention and higher degree of transparency. The depreciation of RMB has encouraged companies to park their currency offshore as a hedge. Furthermore, investors in Hong Kong can enjoy a notable capital value growth in the residential, office and industrial sectors. Developers can also enjoy the competitive advantage by borrowing up to 100% of the land costs and 50% of the construction costs, from which smaller developers are benefited.
“PRC investment in Hong Kong real estate surpassed London and Sydney in 2016 to be the second most popular destination behind Metro New York City. Hong Kong could outstrip New York City as the most popular recipient for PRC real estate investment in 2017. Office buildings have been the most popular property among PRC corporate investors and they have shown interest in acquiring iconic buildings and strata-title offices to hedge against future rent increase.” Antonio Wu, Deputy Managing Director of Capital Markets and Investment Services said.
“PRC investors have been actively looking for trophy assets and en bloc office sales, with top seven en bloc trades accounted for 82% of the total transaction volume between January 2012 and March 2017.” Daniel Shih, Director of Research mentioned. With rising office rent in core-CBD area, more MNCs and SMEs are considering moving to decentralised locations, such as Island East, Kowloon East and Wong Chuk Hang. These locations are becoming mature business districts with new F&B venues, retail cultural, and entertainment amenities. “The share of new office supply between 2012 and 2017 is 90% in decentralised locations vs a mere 10% in Central / Admiralty and fringe areas.” Daniel added.
If Chinese developers are to develop a sustainable business in Hong Kong, they will need to create a long-term strategy to build up their land banks. So far, PRC developers have won prominent sites through government land sales to replenish depleting their land banks. In the medium / long term, they should look beyond the urban core as most of the new development areas will be in the New Territories. Future sites atop MTR stations and sites prepared by the Urban Renewal Authority (URA) will constitute a stable supply of residential development in future. In addition, they can tap into the large pool of industrial properties as an alternative way to increase their land resources for residential projects.
Hong Kong developers with a large agricultural land bank can gradually convert farmland into residential land to maintain a higher profit margin. Smaller local developers should focus on areas outside the urban core area to improve their chance of winning in public tenders, on redeveloping smaller sites for residential uses. Forming consortia with medium-sized PRC developers can be a win-win solution for both parties. Hong Kong market expertise and knowledge in building regulations from a local player will be very useful to PRC developers; in return, Hong Kong developers can be more effective in penetrating the Mainland China market.