April 25, 2017 11:30 pm JST

Hong Kong to outstrip New York for Chinese investors

Mainland developers worry about Trump, Brexit, says Colliers

JENNIFER LO, Nikkei staff writer

Billboards of mainland Chinese companies form the majority of advertisers facing Victoria Harbor on Hong Kong Island. (Photo by Kenji Kawase)

HONG KONG -- Hong Kong is on track to beat New York as the most popular destination for Chinese property investors this year as uncertainty over the term of Donald Trump's presidency prompt mainlanders to stay closer to home, says Colliers International.

According to the property consultancy, Hong Kong became the second largest recipient of Chinese outbound property investment with a total of 41.3 billion Hong Kong dollars ($5.3 billion) in 2016, falling slightly behind New York's HK$44.5 billion.

Hong Kong also surpassed other hot destinations such as Sydney and London, which received Chinese investment totaling HK$28.3 billion and HK$13.7 billion respectively.

The findings were attributed to Trump's anti-China trade policies that have had an impact on sentiment. "With Brexit and European elections going on, a lot of Chinese investors will shy away from Europe," said Antonio Wu, Colliers' deputy managing director of capital markets and investment services for Asia. "Meanwhile, everything is moving along [on] the positive side in Hong Kong."

Wu said Hong Kong's peg to the U.S. dollar would have a "proxy effect" as mainland developers sought to diversify overseas to hedge against a weaker yuan versus the dollar. They also eye investment in Hong Kong as a refuge from the property cooling measures on the mainland.

In the first quarter, Chinese money flowing into Hong Kong real estate reached a record high with transaction volume more than tripling to HK$36 billion from a year ago. That is already more than 80% of last year's total.

While part of the capital is pouring into offices, malls and even car parks, land acquisition accounts for a big chunk of their investment. Mainland developers won about one out of every three residential sites sold by the Hong Kong government last year. So far this year, they grabbed all three sites up for sale.

Chinese tourism conglomerate HNA Group splashed HK$7.4 billion on its fourth site at Hong Kong's former Kai Tak airport in March, bringing its total investment in the area to HK$27 billion in four months.

In February, China's Logan Property and KWG Property won a seafront residential plot for HK$17 billion, the highest price ever paid in a government land sale. The two developers outbid 13 players, including market leaders Sun Hung Kai Properties and Cheung Kong Property Holdings controlled by billionaire Li Ka-shing.

China Vanke and state-owned China Overseas Land & Investment, the country's second- and sixth-largest homebuilders, are also among the active bidders for land in Hong Kong.

Colliers expects a tougher time for local developers. While the four major developers are sitting on a huge agricultural land bank of 106 million square feet (about 9.85 million square meters) that can be converted into homes, smaller players will take the hardest hit. They will likely be forced to abandon core locations for development and form joint ventures with mainland peers.

The influx of mainland capital has also pushed up the already unaffordable home prices for average breadwinners in Hong Kong.

Property prices have steadily topped fresh records. February's home prices rose 14% on the year, extending an 11-month rise, according to official data.

Colliers estimates prices for mass residential apartments and luxury flats in Hong Kong will rise 8% and 3% for the year. Ratings agency Moody's rules out a sharp price correction any time soon as record land prices will reinforce market confidence that home prices will continue to rise.

"At the end of the day, it is the liquidity [of Chinese companies] that is very strong and supports the property market," said Stephanie Lau, assistant vice president at Moody's Investors Service.

Asia300

Sun Hung Kai Properties Ltd.

Hong Kong

Market(Ticker): HKG(16)
Sector:
Industry:
Finance
Real Estate Development
Market cap(USD): 43,697.18M
Shares: 2,896.18M
Asia300

Cheung Kong Property Holdings Ltd.

Hong Kong

Market(Ticker): HKG(1113)
Sector:
Industry:
Finance
Real Estate Development
Market cap(USD): 29,622.23M
Shares: 3,697.49M
Asia300

China Vanke Co., Ltd.

China

Market(Ticker): HKG(2202)
Sector:
Industry:
Finance
Real Estate Development
Market cap(USD): 37,447.52M
Shares: 11,039.15M
Asia300

China Overseas Land & Investment Ltd.

Hong Kong

Market(Ticker): HKG(688)
Sector:
Industry:
Finance
Real Estate Development
Market cap(USD): 36,555.28M
Shares: 10,956.20M

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