Hong Kong’s landlords rush to put offices up for sale, but are they already too late?
Analysts said finding deep-pocketed mainland buyers to make large investments is a challenge while capital outflow controls are still in place.
Hong Kong’s landlords are putting a record number of office space on the market, encouraged by a sale in May of the Murray Road car park that successfully set a benchmark for commercial property prices in the world’s most expensive real estate market.
The number of transactions have risen three quarters in a row to a record in the three months ended June, with HK$13.7 billion of office space changing hands, more than double the deals in the previous quarter, according to data by Colliers International.
“Office space that was asking for HK$39,000 per sq ft before the Murray Road sale rose to HK$50,000 per sq ft, or even more,” after the record was established, said Knight Frank’s consultancy head Thomas Lam.
“We believe the office property price will keep moving up, but at a slower pace as we are getting closer to the peak,” said Daniel Shih, director of Research at Colliers International.
With prices at such lofty heights, agents and landlords are looking to deep-pocketed buyers from mainland China to absorb the space that’s coming on to the market.
However, HNA and other large Chinese conglomerates had been placed under increasing regulatory scrutiny since April for their outsize dealmaking and aggressive acquisitions, on concern they may be taking on way too much debt than China’s financial system can handle.
President Xi Jinping and his ruling Communist Party are anxious to maintain economic and political stability as the party heads into a crucial meeting this autumn to pick a lineup of leaders for the next five years.
HNA, which said it had prepared a tender document for the Murray Road plot, didn’t actually submit its bid.
Property agents better prepare for a period of stagnation, as the combination of China’s capital controls and government scrutiny on overseas investments means “there’s less likelihood of another large investment deal by mainland Chinese companies in 2017,” said Collier’s Shih.
That may leave Cheung Kong Property (Holdings) in a bit of a pickle. The flagship company of Hong Kong’s wealthiest man Li Ka-shing had seen the record price looming, and had put its 73-storey office tower called The Center on the market as early as last year.
“Property deals worth more than HK$20 billion are chasing mainland investors,” said Knight Frank’s Lam. “But deep-pocketed mainlanders are facing a challenge to buy offshore assets.”
The shifting dynamics in mainland China may keep many potential buyers on the sidelines. At least mainland Chinese companies have more flexibility and freedom when then invest in the land market, analysts said.
“ We are seeing mainland investments into the land market has increased substantially since the third quarter of 2016 while mainland investment in properties slowing down,” said Shih. “This reflects the fact that the Chinese authority is more concerned about overseas real estate investments by mainland companies when real estate does not form part of their main business.”
Additional reporting by Lam Ka-sing.