Next generation out to prove itself, will be more creative with property investment, says Savills

Hong Kong’s young blood will look for more creative ways to derive income from real estate, compared with the previous generation of rich families, according to Jonathan Chau, deputy managing director of investment and head of the private investment office at global property services provider Savills.

This new generation will not buy property just to collect rent. “They tend to buy only if they have ideas and want to do business there,” Chau said.

For instance, the third generation of a family behind a major media company bought a store to open a western restaurant near Hong Kong’s Central and Sheung Wan districts with some friends last year.

The second generation of a family behind a major cosmetic retail chain established a fund to engage in investment, construction and strata-title sale of industrial buildings last year, Chau said.

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Other businesses that might attract the new generation include co-working spaces and serviced apartments, said Chau, adding that the old generation would prefer to simply collect rent without really thinking about their property investment.

“To the old generation … a hotel would make a new business, a big leap,” he said. “[But] the younger generation does not want to do factory businesses like their parents. They want to prove themselves.”

Paul Li Man-hong, a fifth-generation member of the Li family that controls the Bank of East Asia, said: “The younger generation can afford to take more risks … You have more energy to deal with obstacles and more time in life to recoup any losses.”

Chau said the younger generation is more open to borrowing from banks. “In the old thinking, if you could avoid borrowing, do not borrow. If you can repay your loans, repay them now,” he said. “The new thinking is that they could reinvest earnings, instead of repaying all loans, when you have earnings every month.”

But raising initial funds is also a challenge. Although they might get capital from their families, the younger generation also needs to apply for loans. And while their background will help them gain trust, banks will still scrutinise their business plans.

“They need to show banks their track record, and whether their ideas can work,” said Chau, adding that they often find bank financing difficult because of a lack of track record.

“So some may start with small projects, while some may pool resources from four or five friends,” he added.

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Of course, some families also want the younger generation to follow in their footsteps. Lam Lung-on, the chairman of mainland China developer Yuzhou Group, for instance, said he wanted his daughter, who may join the company next year, to maintain the same principles in the future.

“As a developer, we should focus on property development,” Lam said. “My expectation is that she keeps the company’s development steady.”