Mainland Buyers Scooped Up 45% of HK’s Land and 64% of Offices Sold in 2016 1H

If residents of Hong Kong feel like mainlanders are buying up half the town, they might not exaggerating, as recently released research shows that developers and investors from north of the border have scooped up most of the office space and nearly half of the new development sites made available in the city during the first half of this year.

Developers from mainland China dominated land sales in Hong Kong buying HK$9.8 billion ($1.3 billion) worth of public land sites during the first six months of this year, according to data from brokerage firm CLSA.

With giant mainland developers seemingly taking over the development business in Hong Kong, Lui Che-Woo, the chairman of local developer K Wah International told Bloomberg earlier this month that he’s baffled by the bidding for project sites after losing in 16 consecutive land auctions in 2016. The winner in these battles for future real estate cash flows increasingly is a company from further north, with mainland buyers snatching up 45 percent of new land sold in the first six months of this year — up from 24 percent in 2015, according to CLSA’s numbers.

One Residential Project In HK as Good as 10 Projects in Second Tier Cities

Part of the reason mainland firms are eager to jump into the Hong Kong market is that the city’s world leading real estate prices make projects in the city look more appealing than even the most expensive cities on the mainland.

Research from the China Real Estate Index showed new home prices in Shanghai average RMB 43,420 ($6,511) per square metre while Nicole Wong, CLSA’s Hong Kong regional head of property research, estimates the average home price in Hong Kong is RMB100,000 ($14,995) per square metre.

The average price per square metre for new homes in China’s top 100 cities stands at RMB 12,270 ($1,838), even as land prices in some second tier cities hit record highs. This math is something mainland developers are aware of.

Wong told Quartz that home prices in Hong Kong are so high that doing one project here is as good as doing ten projects in second tier cities in mainland China for developers.

However, the SAR’s housing market is far from a sure bet for China’s homebuilders with hedge fund manager Kyle Bass claiming the housing market was in free fall and Goldman Sachs predicting a 20 percent drop in Hong Kong home prices earlier this year.

Mainland Buyers Acquire HK Offices at Record Pace

At the same time that Hong Kong developers have been missing out on building sites, mainland investors have also been scooping up grade A office space in Hong Kong, accounting for 64 percent of the total office sales transactions in the city, research from Knight Frank highlighted.

While yields in both the office and residential sector may not be that appealing to those based in Hong Kong, the returns and opportunities are still attractive to Chinese firms.

“Hong Kong is increasingly being used as the first stop for Chinese outbound capital and a springboard to world markets,” Thomas Lam, Knight Frank’s head of valuation and consultancy, told the South China Morning Post. Many of the Chinese firms are purchasing the buildings not only for their investment yield, but also use them as international headquarters for their operation as well as to signal to the market that they are doing business globally.

Knight Frank’s recently released Global Cities report revealed Chinese companies paid US$2.9 billion for Hong Kong offices during the first six months of this year. In the ten years prior, mainland firms had spent a total of US$6.4 billion on office properties.

In February, mainland financial giant China Everbright agreed to purchase the Dah Sing Financial Centre in Hong Kong’s Wanchai district for HK$10 billion ($1.29 billion), with the state-run firm saying it would use the office tower as its Hong Kong headquarters. Then in July, Shenzhen-based billionaire Chen Hongtian purchased the 15-storey east tower at One Harbourgate for HK$4.5 billion ($580 million).

If Chen’s name looks familiar to Hong Kong residents, it may be because the Shenzhen tycoon set a record for Hong Kong’s most expensive private residence in June of this year, paying HK$2.1 billion ($271 million) for a house on Victoria Peak after declaring that his HK$380 million, 5,100 square foot condo in the mid-levels “was a little bit too tiny.”