China’s tightening of capital controls on outbound real estate investments since late 2016 has had an uneven effect here in Hong Kong, with the impact on the local residential and commercial property markets varying quite significantly.

In the local residential market, PRC developers have remained a force in the public land sales market, with at least one PRC developer involved in every tender announced in the year to date.

Their rate of success has also shot up, from winning 11 per cent of all residential sites tendered in 2013 to snatching 75 per cent of the sites so far in 2017. Of the few tenders where PRC developers failed to outbid local players, we believe this was due to the location of the site rather than any issues pertaining to funding. Their appetite for development sites remains focused on urban areas, including the Kai Tak and West Kowloon districts.

Figure 1: Increased participation from PRC developers in Hong Kong land sales market

*Based on best available information on hand on known bidders. YTD cut-off date: 31 October 2017
Source: JLL, Lands Department

More recently, PRC developers have also started to take a closer look at joint-venture opportunities with local developers. Country Garden, one of the leading developers in China, acquired a 60 per cent stake in a residential project in Ma On Shan (STTL 601) from Wang On Group for HKD 2.44 billion (USD 317 million) in May. This marks Country Garden’s second project in Hong Kong.

The restrictions on outbound capital have been more apparent in the city’s commercial property market, and specifically the office market. PRC capital represented eight per cent of the total investment volume in the office sector in the first three quarters of the year, down from 31 per cent in 2016.

Figure 2: Chart showing PRC capital in Hong Kong office investment market* 1Q-3Q2017 data is shown
Source: JLL

The buying freeze, however, appears to be thawing, with PRC buyers slowly coming back into the market. A 75 per cent stake in ‘The Center’, a Grade A office building in Central, was recently sold to a consortium of local and PRC investors for HKD 40.2 billion (USD 5.23 billion), setting a record high for property transaction in Hong Kong. This follows on the heels of LVGEM China’s HKD 9 billion (USD 1.17 billion) purchase of ‘8 Bay East’ in October and the reported sale of ‘KCP’, a suburban shopping mall in Kowloon City, to a PRC buyer for HKD 5 billion (USD 650 million) in August.

Whether these recent transactions point to an easing of capital controls remains unclear given that most of the buyers are listed offshore and hence able to fund their investments without the need to move capital over the border. What is clear is that PRC buyers are still on the prowl for acquisitions in Hong Kong as their investment mandates remain unchanged.

Login

Label

Name*

Email*

Website

Company

Label

Name*

Email*

Website

0 Comments

Inline Feedbacks

View all comments