Mainland Chinese investors pull back from Hong Kong in wake of Beijing’s capital controls
Stricter capital controls introduced by Beijing last November have cut investment demand by mainland Chinese investors in Hong Kong by four times, according to real estate management company Jones Lang LaSalle.
Mainland investors accounted for only 7.6 per cent of the total investment volume in Hong Kong’s office sector in the first half of the year, compared to 31 per cent in 2016, said Denis Ma, head of research at JLL.
The total number of commercial property transactions valued at over HK$100 million surged by 51 per cent year on year in the first half, but total investment volume was down 12.7 per cent year on year. The office sector continued to attract the most investment, accounting for 53 per cent of total commercial investment volume while retail and industrial accounted for 25 per cent and 22 per cent, respectively.
“We continue to see strong investor interest in the commercial property market despite yields remaining at very tight levels,” said Ma. “The office sector continues to draw considerable interest from investors with most focusing on the tight vacancy environment in the city’s core-area markets. We expect this to continue, especially as pre-leasing in upcoming new supply gathers pace and vacancy pressure diminishes.”
The office sector recorded the strongest performance within the commercial and retail sector. Prices for Grade A offices grew 15.1 per cent in the first half, according to JLL. The office market in Central saw capital values surge after the sale of the Murray Road car park site for a record average value of HK$50,056 per square feet.
Capital values of high street shops, however, continued to fall, down 7 per cent in the first half.
JLL said that the current spread between interest rates and property yields provides a buffer against rising interest rates.
“All in all, we expect capital values of Grade A offices and warehouses to go up in the range of 15 to 20 per cent and 5 to 10 per cent respectively in 2017, while those of high street shops to correct 5 to 10 per cent,” Ma added.