Date
20 July 2017
All eyes will be on a commercial site in Murray Road in Central where the tender price is expected to hit a record high of at least HK$18.6 billion, according to street estimates. Photo: Bloomberg
All eyes will be on a commercial site in Murray Road in Central where the tender price is expected to hit a record high of at least HK$18.6 billion, according to street estimates. Photo: Bloomberg

Great Leap Forward movement for Chinese developers

Fifty years ago, Chairman Mao Zedong talked about his grand vision to surpass Great Britain and catch up with the United States in steel production in 15 years.

The so-called Great Leap Forward that aimed to transform the country into a socialist economy from an agrarian economy led to the Great Chinese Famine, an initial blow to Communist Party rule in the early years.

Fast forward to today and the Chinese are looking tall among their global peers. This time, without any slogan, they have made a great leap in terms of overseas property investment.

For instance, mainland companies investing in Hong Kong property reached an all-time high in the first quarter, with a total transaction volume of HK$36.1 billion (US$4.64 billion), up 213 per cent year on year, according to Colliers International.

Comparatively, mainland investors bought HK$17.6 billion in New York and HK$1.26 billion in London in the first three months.

“PRC investment in Hong Kong real estate surpassed London and Sydney in 2016 to make Hong Kong the second most popular destination behind Metro New York City,” said Antonio Wu, Colliers International deputy managing director of Capital Markets and Investment Services.

“Hong Kong could outstrip New York City as the most popular recipient for PRC real estate investment in 2017.”

Why now – and why Hong Kong?

Thanks to worries about yuan depreciation, many Chinese enterprises park their currency offshore as a hedge. Hong Kong enjoys less government intervention and a high degree of transparency than its peers.

More importantly, developers can borrow up to 100 per cent of the land costs and 50 per cent of the construction costs, so they can virtually get money from the mainland for a legitimate reason.

That probably explains why mainland companies bought 10 plots of land for HK$58.9 billion, or nearly 58 per cent of the government land tenders in the past 15 months.

Most notably, HNA Group paid HK$27.2 billion for four sites from November to March for an average price of HK$13,000 per square foot, or about 30 percent higher than the prevailing average at the time of acquisition.

If this trend continues, we should expect the proportion of land bought by Chinese to further increase to 70 per cent this year.

The Chinese like not only empty land but also office space.

Daniel Shih, Colliers director of research said Chinese investors have been actively looking for trophy assets and en bloc office sales. The top seven en bloc trades accounted for more than 80 percent of the total transaction volume between January 2012 and March 2017.

All eyes will be on a commercial site in Murray Road in Central where the tender price is expected to hit a record high of at least HK$18.6 billion, according to street estimates.

And further evidence that China is buying up Hong Kong will be out next month.

– Contact us at [email protected]

BK/AC/RA

EJ Insight writer

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