Private funds set to boost Hong Kong property investment by 40 per cent as assets cheapen after two-year slump

Lam Ka-sing
·5-min read

Institutional investors are flocking back to Hong Kong’s property market after a two-year slump, setting the sector up for its biggest annual growth since 2018 as the economy rebounds from its worst recession.

Total investment volume is expected to soar 40 per cent to HK$86 billion (US$11.1 billion) this year, according to consultancy Colliers International. They fell 35.2 per cent year on year to HK$127.7 billion in 2019 and 52 per cent to HK$61.4 billion in 2020. The firm based its forecast on deals worth at least HK$100 million, using data compiled by Real Capital Analytics.

Private funds have become more active since late last year, as they look to pick up assets beaten down by social unrest and the Covid-19 pandemic. The city saw a 30 per cent jump in investments to HK$10.1 billion in the first quarter from a year earlier.

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“We expect to see investment market sentiment recover further with a higher level of transactions, especially compared to 2020’s low base,” said Rosanna Tang, head of research in Hong Kong and the Greater Bay Area at Colliers. Investment appetite remains solid among investors loaded with capital to deploy, she added.

Hong Kong’s economy is forecast to expand by 4 per cent this year, after shrinking by an unprecedented 6.1 per cent in a pandemic-stricken 2020, Colliers said in an April 15 report. Progress in vaccination programmes and government incentives including stamp duty removal “have also provided some positive spin to the investment market”, it added.

Hong Kong’s government scrapped the double stamp duty on non-residential property transactions in November 2020. It also implemented a pilot scheme for charging land premiums at standard rates for lease modifications for industrial property redevelopment.

Some of the notable transactions last quarter were seen in the industrial sector, such as cold storage and data centres. Singapore’s Mapletree Investments paid HK$813 million in January for a government industrial site earmarked for data centre development. Neighbourhood retail assets were also popular bets last quarter.

Bridgeway Prime Shop Fund Management, whose Bridgeway Shop Property Value-Add Fund owns 14 shops worth HK$288 million, plans a net spending of HK$300 million in 2021, said Edwin Lee, the firm’s founder and chief executive. The fund acquired four shops worth HK$117 million in the first quarter, Lee added.

Gaw Capital, which acquired Cityplaza One from the Swire group in November, continues “to explore undervalued quality assets in different asset classes in Hong Kong and globally”, a spokeswoman said by email. The firm has raised US$16.9 billion since 2005 and managed about US$27 billion in assets as of September last year.

CBRE also noted that property funds have invested HK$3.4 billion in commercial real estate in the first quarter as lower prices and rich liquidity prompted them to seek bargains.

Capital investment peaked in the fourth quarter of 2017 before sliding to a bottom in the fourth quarter in 2019 and the first three months of 2020, when protests shrank the number of big deals in those two quarters to just 38 worth a total of HK$11.6 billion, according to CBRE.

“Low prices and rich liquidity are driving investors to hunt for value-for-money” assets, said Reeves Yan, executive director, head of capital markets at CBRE. “The anticipation of cross-border travel resumption will also induce investors to bargain for retail premises.”

The city’s government this week further eased social distancing measures and offered limited cross-border travel, while allowing pretested mainland visitors to enter the city without quarantine.

Phoenix Property Investors, which managed about US$11.7 billion in assets as of September 30, has been actively looking at deals in Hong Kong, while keeping its focus across the Asia-Pacific region.

“With the roll-out of vaccines, and an easing of lockdowns, we expect the economic growth in Asia will be sustained and we are optimistic about the Hong Kong market,” a spokeswoman for Phoenix said by email. “With respect to Hong Kong, we continue to see medium-term opportunity as cross-border travel resumes and the city benefits from the dynamism of the Greater Bay Area.”

In the office market, Phoenix expects a fairly prompt rebound once certain factors such as the distribution of vaccines and international borders reopening kick back in, the spokeswoman said. Meanwhile, “although the overall retail market sentiment remained fragile, non-discretionary trades are less affected”, she said, citing its portfolio in Tseung Kwan O, O’ South Coast, which has over 80 per cent occupancy, as an example.

Phoenix also expects capital values to “rebound over the medium-term, and the recovery should be aligned to greater investments by Chinese financial services firms” into the city seeking to take advantage of Hong Kong’s financial hub status and global reach, she added.

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