Mainland Chinese investors continue to bet on Hong Kong property market, report says

PUBLISHED : Monday, 14 November, 2016, 10:44pm
UPDATED : Monday, 14 November, 2016, 10:44pm

Mainland Chinese capital continues to pour into Hong Kong’s real estate market, particularly office assets, amid property cooling measures and a weaker yuan.

Investors are buying up office properties despite high prices, as they seek out trophy assets in an environment of low interest rates and yields, according to a report by the Urban Land Institute and PricewaterhouseCoopers.

This helped boost Hong Kong’s commercial transactions, which increased 17 per cent in the first half, according to data from Real Capital Analytics.

“Over the past 12 months, Hong Kong has been a target for a long list of mainland Chinese enterprises looking either to buy trophy assets or to secure grade A rental space in the central business districts,” K.K. So, the tax leader for Asia-Pacific real estate at PwC, said in a press release.

Competition for these assets is stiff, even as the Asia-Pacific region sees real estate transaction volumes drop 39 per cent in the first six months, reflecting a supply shortage in major markets.

“In general, investors are reporting fewer overall transactions but bigger ticket sizes,” the report said.

However, mainland Chinese capital into Hong Kong may shift into non-residential real estate following the rise in stamp duty to 15 per cent for non first-time buyers, although it will not be a major driver, according to So.

“Different considerations will apply when investors consider whether they should invest in a particular market or market sentiment,” So told the South China Morning Post. “[The] stamp duty is only one of the considerations.”

Mainland Chinese investors are also affected by capital controls on currency flows, as well as a depreciating yuan, according to Ariel Shtarkman, the founder of boutique advisory practice Orca Capital.

The People’s Bank of China recently set the yuan fixing rate at less than 6.80 per US dollar, its lowest level since 2010.

This was likely to result in a slowdown in real estate transactions, if not in prices, Shtarkman said.

“It’s not a clear-cut situation,” she said. “But definitely, as we see a depreciation [of the yuan], there will be an effect on mainland Chinese investors.”

In the short term, Hong Kong property prices might see slower growth or undergo a correction, So said.

Overall sentiment, however, “remains quite positive”, Shtarkman said.