Mainland Chinese firms expand property footprint in Hong Kong, set to fuel price rises

Hang Lung Properties

27/01/2017 10:30

* Chinese companies snap up 29 pct of new land in past 2 
years 
    * Mainland institutional investment hits $6.6 bln in 2016 
    * Buying frenzy comes as property prices scale fresh highs 
 
    By Venus Wu and Clare Jim 
    HONG KONG, Jan 27 (Reuters) - 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.  urn:newsml:reuters.com:*:nL4N1FH1JL 
    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.  urn:newsml:reuters.com:*:nL4N1F81CQ 
     
    LAND GRAB 
    The purchases by the likes of HNA Group and China Overseas 
Land & Investment  0688.HK  drove mainland institutional 
investment in real estate to $6.6 billion last year, according 
to DTZ/Cushman & Wakefield, compared with just $1.46 billion in 
2015. 
    The land grab is set to drive sky-high apartment prices up 
even further, realtors said. 
    Denis Ma, 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 $713 million at the former 
airport site of Kai Tak, could fetch HK$25,000 ($3,200) per 
square foot, almost 40 percent higher than residential units 
sold recently in the area.  
    Hong Kong's average price per square foot for luxury 
property, at $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 $1,930 while New York is at $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 Harbour. 
    Hong Kong will auction a site valued at as much as $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.   
     
    FADING INFLUENCE 
    The dominance of Hong Kong's wealthy property tycoons is 
increasingly being challenged as many are unwilling to compete 
with spiralling prices. 
    Some Hong Kong developers "said they would not bid for land 
at the moment, because the price has gone beyond what's 
reasonable. We share very similar views," Ronnie Chan, chairman 
of one of Hong Kong's biggest real estate companies, Hang Lung 
Properties  0101.HK , said at an earnings briefing this week.  
    Thomas Wu, the managing director of another major Hong Kong 
real estate company, Hopewell Holdings  0054.HK , 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.  
    The crackdown by Beijing has delayed some deals, though many 
mainland companies already had offshore assets and financing, 
property advisers said. Hong Kong is the second most favored 
destination for Chinese outbound deals after the U.S. 
    Stanley Wong, executive director of capital markets at CBRE 
Hong Kong, told Reuters three transactions that his company was 
advising on, involving land parcels and office space, had been 
held up, pending capital from mainland China. The bidders were 
in the property, insurance and finance sectors, he said, adding 
that the deal size ranged from HK$1 billion to HK$3 billion 
($129 million to $387 million). 
    "In the past when these large companies needed to take 
capital here, it would take State Administration of Foreign 
Exchange (SAFE) two to three weeks to approve," Wong said. "But 
now we still have not heard back from SAFE ... it's already been 
two to three months." 
    Chinese developers listed in Hong Kong, including China 
Vanke  2202.HK  , Country Garden  2007.HK  and CIFI  0884.HK  
told Reuters 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, head of 
research at CBRE Hong Kong, southern China and Taiwan. 
    Thomas Lam, senior director at property consultancy Knight 
Frank, said the arrival of any new players from mainland 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.  
 
($1 = 7.7574 Hong Kong dollars) 
 
 (Reporting by Venus Wu and Clare Jim; Editing by Anne Marie 
Roantree and Martin Howell) 
 ((clare.jim@thomsonreuters.com; +852 2912 6653; Reuters 
Messaging: clare.jim.thomsonreuters.com@reuters.net)) 
 
Keywords: HONGKONG PROPERTY/CHINA