Mainland Chinese insurers, banks waiting to move into Hong Kong office sector

Mainland insurers and banks currently looking for office space for their own use or investment purposes are expected to form a new buying force in Hong Kong's weak investment property market, according to property consultants.

"Mainland enterprises such as insurers and banks have been actively looking for properties in Hong Kong that are prestigious and in prominent locations, for example en-bloc office buildings in the central business district," said Tom Ko, director of investment and advisory services in Hong Kong for property consultancy DTZ.

The companies would be interested in buying both for their own use and investment purposes, he added.

Deals had not yet been done, he said, but this was because of a limited choice and high transaction costs.

"But these companies are expected to become a significant force in the end-user demand for investment properties, should the market conditions improve," Ko said.

According to a DTZ report on the city's property investment market, a total of 27 property transactions valued at HK$100 million or above were conducted in the third quarter compared with 42 such deals in the second quarter. The decline was due to successive property cooling measures taken by the government, the report said.

Investment activity was weak across all sectors during the third quarter, with total investment turnover for deals worth more than US$10 million down 20 per cent quarter-on-quarter and 38 per cent year-on-year, to HK$10.6 billion, according to property consultant CBRE.

CBRE said it expected to see prices softening, particularly in small strata-title retail and office assets, where this trend had already started to develop to some degree.

"This is likely to spill over to small industrial properties and possibly some mid- to larger sized assets towards the end of 2013 as buyer expectations of price corrections continue to develop," CBRE said in its most recently released research report.

But any price softening may be muted for en-bloc properties. Lack of supply in addition to the substantial income potential from such assets should ensure they remain both an attractive investment opportunity as well as a desirable option for end users, the report said.