Hong Kong—a key PRC investment destination

May 5, 2016 / By  

Last week, our China Research team released a new report titled “Gearing up for a new era of domestic capital”, which summarised the increasing importance of domestic capital in China’s real estate investment market as well as growing outflow of capital from China into global commercial real estate markets, which increased by 38% to USD 15.5 billion in 2015.   

Although the report showed that PRC investors have become increasingly active in real estate markets around the world, Hong Kong remains as one of the most favoured investment locations; trailing behind only New York and London. Since the beginning of 2015, PRC investors have accounted for about 28% of commercial real estate investment volumes in Hong Kong, which is the highest amongst cities across the Asia Pacific region outside of China.

Figure 1: PRC market share in Hong Kong is the highest in Asia Pacific (From 1Q15 to 1Q16)

The office sector has been a key focus of PRC investors. A tight vacancy environment and resilient rental market, especially in the core-areas such as Central, Wanchai/Causeway Bay and Tsimshatsui, has contributed to a significant increase in PRC capital flowing into the office sector; accounting for about 70% of the total amount invested in the sector over the past six months. PRC investors have now been involved in three of the four largest en-bloc office transactions on record.

Despite a slowing Chinese economy and record high prices, we expect Hong Kong to continue to remain as a key destination for real estate investment as PRC corporates are set to become more significant players in the global market and look to diversify their portfolios. Even with US interest rates forecasted to rise over the near-term, we believe that investment demand will remain resilient as most PRC investors are buying for self-use and long-term investment. Indeed, a number of PRC investors are actively on the lookout for investment opportunities. With the weight of capital flowing into the market, prices should continue to be well supported.

Pricing is also likely to get a boost from the city’s government land sale market. The limited opportunity to acquire standalone trophy assets in Central has been one of the biggest hurdles for PRC investors. The release of prime government sites, such as the Murray Road Car Park—included in the 2016/17 Land Sale Programme and the first development site to be offered via public tender in Central in the last 20 years—is expected to draw keen interest from PRC investors including banks and insurance companies, and in turn will likely set new benchmarks for pricing in the city’s office market.

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