Mainland financial giant China Everbright announced late on Thursday that it has agreed to purchase the Dah Sing Financial Centre in Hong Kong’s Wanchai district for HK$10 billion ($1.29 billion), as Chinese giants continue to buy up real estate assets in the Asian financial hub.
Everbright bought the 348,000 square foot (32,330 square metre) office tower on Gloucester Road from Hong Kong-listed developer SEA Holdings through a joint venture deal involving the mainland parent company and its offshore subsidiary, China Everbright Limited. The purchase is the third blockbuster acquisition of office assets in Hong Kong by mainland buyers in the last four months.
While Hong Kong remains the most expensive place to rent an office globally, many analysts have said that mainland buyers are overpaying for Hong Kong assets in an effort to build a brand outside of their domestic markets.
Everbright Buys a Base in Hong Kong
According to the announcement by Everbright to the Hong Kong stock exchange, the Dah Sing Financial Centre, which was completed in 1991, has a gross floor area of 400,113 square feet, meaning that the mainland giant paid the equivalent of HK$24,992 ($3214) per square foot of gross floor area. The building occupies a 26,705 square foot site.
Everbright says that it is purchasing the building to house its own operations in Hong Kong.
The deal is the second-largest acquisition of a Hong Kong office asset ever, following mainland developer Evergrande Real Estate’s HK$12.5 billion purchase of the Mass Mutual Tower in Wanchai from Chinese Estates last November.
Are Mainland Companies Buying Hong Kong Buildings as Billboards?
Although a report published by JLL this past week found that Hong Kong has the world’s highest office rents, at an average of $262 per square foot per year, analysts familiar with the Dah Sing deal say that it provides China Everbright with a potential investment yield of only three percent. Many observers of Hong Kong’s office market believe that mainland buyers in some cases are paying as much for branding as they are for real estate value.
During the same month that Evergrande bought the Mass Mutual Tower, mainland insurer China Life Insurance set a new record for purchase of a commercial property in Hong Kong’s Kowloon area by purchasing two buildings currently under development at Wheelock and Company’s One Harbourgate complex for HK$5.86 billion ($755 million).
Following Evergrande’s purchase of the Mass Mutual Tower, investment bank JPMorgan criticised the deal for failing to add value to the company after calculating that the asset would provide only a 1.7 percent yield.
China Everbright is involved in asset management, direct investment, brokerage and investment banking throughout Greater China, and is among China’s largest state-owned financial services firms. The Beijing-based company is controlled directly by the State Council – the equivalent of China’s cabinet and it set up its Hong Kong-based subsidiary, China Everbright Limited, in 1992.