Non-residential real estate investments into Hong Kong have soared this year, as mainland Chinese and foreign investors snapped up industrial buildings, shops, serviced apartments and car parking bays in the city.
Purchases by foreigners and Chinese investors soared to a two-year high of HK$17.3 billion (US$2.2 billion) in the eight months through mid-August, according to data compiled by Midland IC&I, which tracks non-residential property deals larger than HK$100 million. Investors domiciled in mainland China made up HK$8.53 billion, or 49 per cent of the deals, the highest since the city’s anti-government protests of 2019, the data showed.
“The overall investment market has gradually recovered in Hong Kong, with the pandemic under control,” said Tony Lo Chin-ho, chief executive of Midland’s ICI Property unit. “The number of big-ticket transactions is showing an upward trend.”
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The investment boom underpinned the recovery in Hong Kong’s economy, which expanded by 7.5 per cent in the second quarter following a larger-than-expected first-quarter growth of 7.9 per cent. Total non-residential real estate deals, inclusive of local transactions by Hongkongers, jumped to HK$49.1 billion as of mid-August, more than the 12-month total for 2020, according to Midland’s data.
Transactions may slow down in the second half of 2021, as some foreign investors postpone their expansion plans in the city and head for the sidelines, amid concerns about how their businesses would operate under a proposed anti-sanctions law for Hong Kong.
A law enacted in June in mainland China gives Beijing authorities legal grounds to take countermeasures against foreign individuals and entities involved in discriminatory measures that “violate international laws and basic norms.” Enactment of the law in Hong Kong was unexpectedly delayed last week, as a four-day meeting in China’s legislature concluded without saying how the legislation would be adopted in the city.
“Although the anti-sanctions law was postponed in Hong Kong, it still caused worries [among] foreign investors,” said Lo, adding that the pace of foreign investments will slow down in the second half of 2021 in Hong Kong. “Most foreign funds entered the market in the first half of the year.”
Still, the city is in the throes of a real estate bull run, as investments poured into residential property, offices, retail shops and even parking spaces, taking advantage of record low interest rates and easy financing.
The overall volume of property transactions - inclusive of residential and commercial real estate - is expected to top HK$628.4 billion in the first eight months, surpassing last year’s 12-month total, according to data provided by Centaline.
Notably, market demand for data centers, warehouses and logistics centers increased. Many Chinese companies including the electric carmaker Xpeng, and the short-video platform Kuaishou Technology have also rented offices in Hong Kong, following their initial public offerings on the city’s exchange.
Investment banks and brokers expanded their operations to serve the flurry of listings in Hong Kong. China International Capital Corporation (CICC), the country’s largest investment bank, expanded its space at the IFC One tower by renting another 53,000 square feet (4,900 square metres) of space, paying an estimated HK$130 per square foot in monthly rent, or 30 per cent discount to the peak rent in one of Hong Kong’s most prestigious locations. The deal was the largest office lease this year, according to people familiar with the matter. Sales of ultra-luxury homes such as the February deal at CK Asset’s 21 Borrett Road on The Mid-Levels for almost half a billion dollars also bolstered the overall transactions value. The luxury unit, measuring 3,378 square feet, was registered to a buyer called Yin Xi, spelt in the pinyin system of romanising Chinese names in mainland China, according to Land Registry records.
“As foreign capital has already entered the market in the first half, and the number of suitable listings has decreased, the proportion of foreign capital’s investment will gradually decline in the second half,” said Alvan Chan, director of Midland Industrial, a department of Midland IC&I.
The property bull run helped Midland to swing back into the black, with an interim net profit of HK$33.26 million, compared with a loss of HK$7.78 million in the first six months of 2020. The turnaround was mainly attributable to the rebound of the non-residential property market in Hong Kong in the first half, Midland said in its stock exchange filing, without declaring an interim dividend.
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