More mainland developers will bring competition to the Hong Kong residential market

May 8, 2014 / By  

In February 2013, Poly Property–a Hong Kong listed PRC developer–outbid several local developers to acquire a residential development site in the Kai Tak Development Area (KTD) in Kowloon East for HKD 3.9 billion (the accommodation value* of HKD 6,530 per sq ft setting a new benchmark for the area). Poly Property’s purchase is just the latest example of PRC developers moving into the city’s residential property market. China Vanke acquired a residential waterfront site near Tsuen Wan West station in partnership with New World Development in January 2013 and more recently acquired a residential development site in Wanchai while China Overseas Land & Investment acquired two development sites in KTD last year.

Hong Kong’s residential property market has historically been dominated by a handful of players. While the recent arrival of PRC developers entering the Hong Kong market is unlikely to have a significant impact on the existing oligopoly–our analysis shows that around 80% of the current residential land bank is controlled by just four developers–this could change over time; especially with the Mainland market conditions becoming increasingly challenging. Indeed, we are already aware of a number of other PRC developers eyeing development opportunities in Hong Kong as part of a broader growth strategy outside of the Mainland.

To compete in the local residential market, PRC developers will likely need to build something that is at least up to standard compared with those provided by local developers. Doing so will not only make their products more attractive to buyers but also help them build and establish their brand. As for local developers, they may need to revisit their business models and strategies to ensure that they are able to continue to grow in a more competitive environment.

At the end of the day, more competition should ultimately be a boon for buyers.

*Accommodation value is defined as the land price divided by the total permitted gross floor area

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