Hong Kong property

Mainland developers loosen purse strings to snap up prime real estate in Hong Kong

Land prices in city still much lower than in top Chinese cities, say industry experts

PUBLISHED : Tuesday, 09 August, 2016, 4:32pm
UPDATED : Wednesday, 10 August, 2016, 6:14pm

Cash-rich developers from the mainland are on a shopping spree in Hong Kong and are leaving no stone unturned to corner prime real estate in the city.

Though the shopping spree comes at a time when property prices on the mainland have recovered, experts said developers are still bullish on Hong Kong realty as it offers better returns amid yuan and land price fluctuations on the mainland.

Developers from the mainland accounted for about HK$13.8 billion, or 42 per cent of the HK$30.6 billion revenue earned by the Hong Kong government from residential land sales till August 8 this year, according to data compiled by the South China Morning Post.

Among the mainland developers who were active in Hong Kong this year include Vanke Property (Overseas), a unit of the mainland’s largest homebuilder China Vanke, China Overseas Land & Investment, Goldin Financial, whose parent Goldin Group previously focused on real estate investment on the mainland, and the Beijing-based Minmetals Land.

“Apprehensions about the yuan volatility are prompting mainland developers to increase their overseas investment and Hong Kong is fast emerging as one of the most preferred destinations,” said Vincent Cheung,executive director for valuation and advisory services in Asia at Colliers International.

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The Chinese currency weakened a further 2.5 per cent against the greenback this year after falling more than 4 per cent in 2015.

“Hong Kong’s low interest rates and stable currency, as it is pegged to the US dollar, could be very attractive for those who are seeking safe haven assets,” Cheung said.

Minmetals Land, the real estate arm of state-owned Minmetals Corp, China’s largest metals trader, is the latest biggie to have developed a taste for Hong Kong real estate. The firm bagged a prime residential site in Yau Tong, outbidding 12 competitors, for HK$4 billion on August 3. The price paid by Minmetals equates to HK$7,000 per sq ft, far beyond market expectation and setting a record price for the traditional industrial area at the east end of Victoria Harbour.

Cheung said mainland developers now view land costs in Hong Kong, one of the world’s most expensive cities in terms of property investment, as comparatively cheap. He cites the example of a land parcel in Longhua at Shenzhen, Hong Kong’ next door neighbour which was sold two months back for about 56,800 yuan per square metre, or nearly HK$7,000 per sq ft.

“Prime land could be very expensive on the mainland now. So it is less risky [for developers] to buy land in Hong Kong, given that prices here have not surpassed home prices yet,” said Eva Lee, a property analyst at UBS. “The margin is still predictable.”

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According to industry data, housing units in Yau Tong are currently being sold for about HK$10,000 to HK$13,000 per sq ft. The vast difference between the land cost and sale price is an indication of the returns that developers can get from prime real estate in the city.

Mainland property developers have rushed to buy land in China’s large cities in the past year as smaller cities are suffering from oversupply amid the central government’s continuous monetary easing measures. As a result, prices skyrocketed with some land parcels being sold at average rates that are more expensive than new flats in the area, thereby hurting developers’ margins.

Going forward, Lee said it is hard to say if more mainland developers will come to Hong Kong given that the city’s property market is still facing fluctuations.

But He Jianbo, Minmetals Land deputy chairman said in a recent statement that he is confident about the prospects for Hong Kong’s housing market as he believes the short supplies in the residential market will continue into the long term.

Cushman & Wakefield’s Cheung warns it could be more challenging for mid- and small- sized mainland developers to invest in Hong Kong.

“The cost could be very high, as they don’t have their own contractors like Hong Kong developers. In addition, local property tycoons only choose big mainland developers to jointly develop the projects.” he said.