Mainland Chinese companies have piled into Hong Kong property in 2015-2016, outbidding some of the territory’s most powerful developers to gobble up 29 percent of land sold for development in one of the world’s most expensive real estate markets, according to new industry figures.
That is almost a six-fold increase from their purchases of just 5 percent of the land sold in public land auctions in the years 2013 and 2014, the data from real estate broker Midland Realty shows.
The buying frenzy comes at a time when home prices in Hong Kong have reached new record highs, bucking government cooling measures, and potentially fueling discontent in a city whose population is already under strain from high living costs and a widening wealth gap.
Photo: Reuters
Nearly 200,000 Hong Kong residents, half of them under the age of 35, have resorted to living in wire cages, half of a bunk bed, or partitioned apartments often smaller than car park spaces.
The purchases by the likes of HNA Group Co (海航集團) and China Overseas Land & Investment Ltd (中國海外發展) drove mainland institutional investment in real estate to US$6.6 billion last year, according to DTZ/Cushman & Wakefield, compared with just US$1.46 billion in 2015.
The land grab is set to drive sky-high apartment prices up even further, realtors said.
Denis Ma (馬安平), head of research at real estate services firm JLL in Hong Kong, said luxury apartments to be built on HNA Group’s latest plot of land, purchased for US$713 million at the former airport site of Kai Tak, could fetch HK$25,000 (US$3,200) per square foot (US$34,445 per square meter), almost 40 percent higher than residential units sold recently in the area.
Hong Kong’s average price per square foot for luxury property at US$3,000 is ranked second-most expensive in the world, trailing just after Monaco, according to Christie’s International Real Estate. By comparison, London is the third-most expensive at US$1,930 while New York is at US$1,860.
“There is a high chance they [mainland companies] will reset the benchmark in areas like Kai Tak,” Ma said of the district overlooking the city’s iconic Victoria Harbor.
Hong Kong will auction a site valued at as much as US$2.2 billion in the first quarter, the first sale of commercial land in the Central business district in more than 20 years, and it is widely expected to be snapped up by a mainland Chinese developer, market participants told Reuters.
The dominance of Hong Kong’s wealthy property tycoons is increasingly being challenged as many are unwilling to compete with spiraling prices.
Some Hong Kong developers said they would not bid for land at the moment, because the price has gone beyond what is reasonable.
“We share very similar views,” Ronnie Chan (陳啟宗), chairman of one of Hong Kong’s biggest real estate companies, Hang Lung Properties Ltd (恒隆地產), said at an earnings briefing this week.
Thomas Wu (胡文新), managing director of another major Hong Kong real estate company, Hopewell Holdings Ltd (合和實業), told an earnings conference this week his company would not actively participate in the Hong Kong property sector as prices had “deviated from the market.”
The strong rise in overseas property investment and an increase in deals for other foreign assets has alarmed Chinese authorities and they have stepped up measures to stem capital outflows in the face of a weakening currency. Hong Kong is the second-most favored destination for Chinese outbound deals after the US.
CBRE Hong Kong said three transactions it was advising on, involving land parcels and office space, had been held up, pending capital from China. The bidders were in the property, insurance and finance sectors, the company said, adding that the deal size ranged from HK$1 billion to HK$3 billion (US$129 million to US$387 million).
Chinese developers listed in Hong Kong, including China Vanke Co (萬科), Country Garden Holdings Co (碧桂園) and CIFI Group (旭輝集團) said their overseas investment plans had not been affected by Beijing’s clampdown, as they had sufficient access to offshore funds.
“While the capital control measures definitely have a certain degree of impact on the market, the impact is only limited to new capital inflows,” said Marcos Chan (陳錦平), head of research at CBRE Hong Kong, southern China and Taiwan.
Thomas Lam (林浩文), senior director at property consultancy Knight Frank LLP, said the arrival of any new players from China would make it even harder for mid-and small-sized local property developers to acquire new land.
“The rules of the game have changed,” he said.
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