After nearly twenty years of boom times, China’s real estate developers are known for their optimism, and this positive market outlook was revealed again this week when state-owned developer China City Construction (International) set a new local record for a land purchase in Hong Kong.
The Tianjin-based real estate firm holds 90 percent of a joint venture that outbid all competitors at an auction on Wednesday to pay HK$2.14 billion ($276 million) for a site in the Sha Tin district of Hong Kong’s New Territories, according to an account in the South China Morning Post. The price paid for the site was said to be above market expectations and is approximately 30 percent more than local Hong Kong developer Sun Hung Kai paid for land in the same area one year ago.
As China’s domestic real estate market has slowed down, many of the country’s property developers have begun heading overseas for opportunities, often surprising local players with their willingness to bid up prices for land and mature assets.
Paying 40 Percent Over the Expected Land Price
China City partnered with Hong Kong’s Chun Wo Development (0711), which took a 10 percent stake in the joint venture, to bid the equivalent of HK$5,517 per build-able square foot ($7661 per build-able square metre) for the waterfront site on Sha Tin’s Yiu Sha Road. The price is said to be nearly 40 percent more than what local surveyors expected.
According to Hong Kong property agency Centaline, average home prices in the special administrative region have risen 9.6 per cent so far this year to set a new record high. On the mainland, by contrast, developers like China City have seen seven straight months of declining prices and unsold inventories of new homes reached record highs in November.
More Mainland Developers Moving into Hong Kong
And China City, which is affiliated with China’s Ministry of Construction, is not the first mainland developer to outbid local Hong Kong property barons for sites in the SAR this year.
In February, Poly Property, the mainland’s second largest developer by sales, outbid Li Ka-shing’s Cheung Kong (Holdings) and Henderson Land to pay HK$3.92 billion ($506 million) for a 600,836 square foot (56,000 sqm) project at the former airport site in Kai Tak.
Also, in April this year, China Vanke, the mainland’s biggest developer by sales, acquired a residential site in Hong Kong’s Wanchai district for HK$860 million ($111 million). The Wanchai project was Vanke’s second acquisition in Hong Kong after the Shenzhen-based developer won a HK$3.43 billion ($442 million) bid for a site in the city with Hong Kong’s New World Development Co in January 2013.