In recent months, cash-flush mainland real estate developers have taken Hong Kong by storm, snapping up land in premium locations at shockingly high prices one after another.
The fact that mainland developers are scrambling madly for land in Hong Kong and pushing land prices sky high has raised a lot of eyebrows among their local rivals who have cast doubts on the profitability of these aggressive investments.
For example, Raymond Kwok of the Sun Hung Kai Properties and Lui Che-woo of K. Wah Group, the two leading developers in Hong Kong, said their companies would not join the current land buying frenzy as they are not as bullish about the growth prospects of the local property market as their mainland competitors.
They have decided to sit on the sidelines, weigh the risk carefully and be very cautious about buying land. They believe current land prices have gone way beyond their value.
In fact, the aggressive land purchases by mainland companies and the relatively cautious attitude of big local developers toward buying land highlight a fundamental difference in terms of mindset and agenda between Hong Kong and mainland developers.
As far as mainland developers are concerned, there could be a political side to their investments: they are snapping up land in Hong Kong regardless of high prices probably because they could be on a mission to expand their property footprint to “dilute” the hegemony of local developers.
And by increasing the proportion of Hong Kong dollar assets in their investment portfolios, it might allow them to hedge against the risk of depreciation of the renminbi in the days ahead.
In contrast, what local developers embrace is a kind of “businessman’s mindset” under which the only thing they are concerned about is the profitability of their investments.
They have continued to exercise restraint and caution even amid the current low-interest rate environment because they are not that optimistic about the global economy and they are highly alert to the risk of asset bubbles.
And local real estate tycoons are not alone in thinking twice before investing.
According to the Economist, throughout the 40 years before the financial tsunami in 2008, investments by British enterprises had been growing at an average 3 percent a year.
However, after the 2008 global financial meltdown, that growth dropped to an average of 1.5 percent and has remained since then, suggesting that while the low-interest rate environment since 2008 has pushed asset prices sky high worldwide, it hasn’t boosted enterprise investments much.
It remains to be seen whether Hong Kong developers will eventually jump on the land buying bandwagon to keep their market share in the face of the “invasion” by their mainland rivals even if that might be against their better judgment.
This article appeared in the Hong Kong Economic Journal on Mar. 8
Translation by Alan Lee
[Chinese version 中文版]
– Contact us at [email protected]