Hong Kong office market gets fresh impetus from flurry of deals by mainland buyers
Commercial property transactions surge as cash-rich Chinese companies look to diversify their overseas holdings
Over the past 12-months, mainland buyers have created quite a buzz in Hong Kong’s office investment market with a number of record-breaking transactions.
The ball got rolling late last year when Evergrande acquired Mass Mutual Tower in Wanchai for HK$12.5 billion, the largest amount ever paid for an office building in the city. This was quickly followed by Everbright’s purchase of Dah Sing Financial Centre for HK$10 billion. Across the harbour at One HarbourGate in Hunghom, China Life purchased the West Tower for HK$5.85 billion while Shenzhen-based Cheung Kei Group bought the East Tower for HK$4.8 billion; both record highs for the district, in terms of the unit price.
The strong influx of mainland capital comes at a time when rental markets are starting to look wobbly. While vacancy rates are still relatively tight across the market, demand growth remains weak. Coupled with a wave of new supply nearing completion, rents are already starting to trend lower in some areas.
But what is driving this ‘sudden’ interest in commercial property among mainland corporates?
The easing of the regulatory approval processes for outbound investment, as part of China’s ‘going out’ policy, has played an important role in the rise in capital outflows. In 2013, the National Development and Reform Commission, China’s top economic planner, increased the overseas investment approval limit from US$100 million to US$1 billion, allowing companies to make investments under US$1 billion without prior government consent. In 2014, the commerce ministry further loosened restrictions on foreign investment by removing the prior approval requirements for most of the outbound investments.
Allowing the country’s insurers to diversify their investments in offshore real estate has also been a contributing factor. Since 2012, China’s insurance companies have been allowed to invest up to 15 per cent of their total assets overseas, including real estate among other asset classes. Based on the Assets Under Management (AUM), JLL’s International Capital Group had previously estimated that as much as US$240 billion could be invested into global real estate markets outside of China. In addition to China Life’s recent purchase, a number of other mainland insurers have expressed interest in investing in the local property market.