Mainland Developer Confirms $169M Purchase of Kowloon Space From CSI and Phoenix

Mainland developer Fullsun International has acquired five floors in a Kowloon East office project from CSI Properties and Phoenix Property Investors for HK$1.3 billion ($169 million), a filing by the company shows. Fullsun’s announcement of the deal comes just a week after the Fuzhou-based developer unveiled its purchase of a Kowloon residential block for HK$920 million ($117 million).

In the Kowloon East transaction, Fullsun agreed to buy five floors in Enterprise Square Three in Kowloon Bay with a combined area of 72,800 square feet (6,723 square metres), along with 16 car parking spaces from a joint venture between CSI Properties and Phoenix Property.

The transaction was announced by Phoenix Property in December as the sale of the assets marked the seventh exit from the Phoenix Asia Real Estate Investments V fund by the property firm.

CSI Properties Cashing in HK$3.6B in Three Months

The deal for the assets at 39 Wang Chiu Road in the up and coming commercial district brings CSI Properties’ combined capital gains from selling properties to HK$3.6 billion ($459 million) since the beginning of the year.

In January, the mid-sized Hong Kong developer sold a Central project to Richard Li’s Pacific Century Premium Developments (PCPD) for HK$2 billion ($256 million). The transaction was followed by a sale of four commercial floors in Central for HK$ HK$300 million ($38 million) in February.

The developer led by former Li associate Mico Chung Cho-yee might see an opportunity to transfer its recent gains into new acquisitions. CSI is reportedly close to purchasing a commercial building in the Jordan area of southern 1Kowloon, for HK$2.45 billion ($312 million).

In October last year, the developer won the rights to redevelop a site in Central, along with Wing Tai Properties, for a reported HK$11.6 billion ($1.49 billion). The duo will develop the site into a complex comprising office, hotel and retail space, which will total 434,000 square feet (40,320 square metres).

Meanwhile, Phoenix Property has a history of investing in Kowloon East. In May last year, it sold the 24-storey Kwun Tong View for HK$1.99 billion ($225 million) to a local private investor.

Fullson to Diversify HK Portfolio

Out of the assets that CSI sold to Fullsun, three floors and ten car parks are currently leased until June 2022, while the remaining properties are vacant. The mainland company says that it plans to lease out the properties for rental income and occupy one vacant floor as its office.

“The management considers that the diversification to property investment in Hong Kong will enable the Group to maintain relatively stable and recurring rental income as well as to achieve possible long-term capital appreciation,” Fullsun said in the statement.

Enterprise Square Three, located across the street from Kowloon Bay’s MegaBox shopping mall, is a 15-minute walk from Kowloon Bay metro station. Built in 2004, the office tower has 41 stories.

Fullsun’s HK$2B Deals Not Buying Spree

Fullsun made its HK$2.2 billion ($280 million) in a week at the same time that other builders from north of the border have been scaling back their acquisitions of Hong Kong real estate during the past year, after dominating land deals in the city during 2016 and early 2017.

From last April to January, mainland developers purchased only 11 percent of the land sold via government tenders, down from as high as 53 percent in the previous fiscal year, according to an S&P Global Ratings Report cited by Bloomberg.

Despite Fullsun’s burst of deals, industry analysts do not yet see a rebirth of mainland investments in Hong Kong.

“This is not necessarily signalling a start of a buying spree. Given market uncertainties such as the interest rate movement, investors still have to evaluate returns, risks, and long-term prospects of each investment independently,” said David Ji, Head of Research & Consultancy for Greater China at Knight Frank, during a phone interview with Mingtiandi.

Fullsun International’s parent company Fusheng Group has property businesses in ten cities across China, including Shenzhen, Zhengzhou and Tianjin.

Kowloon East Office Supply on The Rise

After buying its residential project last week, the Fuzhou-based developer chose Hong Kong’s second largest office market Kowloon East for its first commercial deal in the city. Rents in Kowloon East are just one-fourth of Central’s and many multinational companies are already migrating to the area. Last year, Citibank moved the majority of its staff to the Citi Tower in Kowloon East in a bid to save rental costs in Central.

However, office rents in Kowloon East are expected to drop by five to ten percent in 2018, according to JLL, as the office supply in the area is set to increase. Office buildings like Hong Kong Pacific Tower and Mapletree Bay Point are scheduled for completion by the next quarter, which will add 776,500 square feet of space to the submarket.