Sales of Hong Kong investment property expected to fall as Beijing tightens capital controls

Sales of top quality commercial buildings costing multi-billions of Hong Kong dollars are expected to fall this year as Beijing’s tightened capital controls could stall mainland corporates acquiring overseas assets.

The latest policy will reduce the number of deep-pocketed mainland enterprises making property purchases in Hong Kong, which has emerged as a favoured investment destination.

Alva To Yu-hung, senior managing director of Hong Kong at DTZ Cushman & Wakefield, said the policy could deal a blow to the investment property market.

“Mega deals involving more than HK$10 billion will definitely slow down. State-owned enterprises will be most affected by the policy as they need to seek approval from mainland authorities before sending the money out to Hong Kong,” he said.

To said many purchase decisions would be deferred indefinitely until a change of policy.

Albert Lau, the chief executive of Savills China, said in Shanghai that the central government has indicated clearly its determination to regulate the capital outflow in an orderly fashion.

“It is difficult for companies without offshore operations to transfer large amounts of money to acquire overseas properties at this moment as the policy was just rolled out in November,” he said.

JLL head of capital markets Joseph Tsang believes the policy would affect investment sentiment but deals under negotiation would likely be held up only temporarily.

“China’s state-owned companies are a major buying force for trophy assets. I think they are looking for different ways to raise funds instead of calling off the deals,” Tsang said.

Still, negotiations for the sale of commercial blocks will take longer than previously expected, said Tsang.

Hong Kong’s wealthiest man, Li Ka-shing, remained tight lipped on the progress for the sale of his company’s stake in the 73-storey office tower The Center in Central.

“We will not disclose anything until a deal is done. There are lots of purchase offers being presented to us but not all of them can be closed deals. Majority of them are not successful,” he told reporters ahead of the Cheung Kong group annual dinner on Thursday.

Cheung Kong Property Holdings, chaired by Li who is also the chairman of conglomerate CK Hutchison Holdings, offered the portion of the building it owns on the market early last year, according to a property agent involved in the deal, who declined to be named. A number of buyers are in talks to acquire the office tower, completed in 1998, and believed to be valued at HK$35 billion, the agent said.

“The deal involves such a large sum, it will be difficult to secure consent from Beijing. But the current policy on controlling capital outflows will last until September this year. State-owned enterprises’ interest will revive once the policy changes.”

The central government unveiled new capital controls in November, which include halting foreign real estate deals worth more than US$1 billion by state-owned enterprises.

Cheung Kong owns 48 storeys in the building after Malaysian developer Guoco Group bought 11 floors in 1997. Nine of the 11 floors were sold to Singapore’s DBS Group Holdings in 1998, while Cheung Kong sold the 60th and 79th floors in 1999, according to The Center’s sales brochure. The number of floors in the building exceed its actual height because of anomalies in the numbering system.

Cheung Kong puts The Center up for sale as Li Ka-shing trims Hong Kong assets

Agents said China’s state-owned companies are the most likely buyers for the tower, which features 1.2 million square feet of office space, 13,000 square feet of retail space and 402 car parking lots.

Based on an entirely steel structure, the tower is one of the few in Hong Kong that does not make use of reinforced concrete. Its iconic lobby was featured in the Hollywood film The Dark Knight.

Li said CK Property has many investment properties such as hotels and serviced apartments which would provide stable income, while CK Hutchison owns business in 50 countries.

“In Hong Kong, we grew our retail outlets from 30 when we acquired Hutchison [in 1979] to 606 at present. If we only limit our business in the city, our retail business will increase to 800 at a maximum. But now we have 13,000 outlets worldwide and have the ability to open more than 1,000 outlets every year,” he said.

“Diversification overseas has always been and will always be the cornerstone of our corporate strategy,” he said.

Li said his charitable Li Ka Shing Foundation has given away more than HK$20 billion over 30 years, of which more than 80 per cent went to projects in the Greater China Region.

In a sign of confidence in the mainland market, Li said he made a roughly HK$10 billion investment which will be locked up for four to five years. He did disclose details about the investment.

As of September 2016, Li, together with his eldest son Victor Li Tzar-kuo and his three charitable foundations, have accumulated a combined deemed interest of 11.62 per cent of the Hong Kong shares, or 2.8 per cent of total issued shares, of Postal Savings Bank of China.