18 Oct 2018
South China Morning Post reports that Hong Kong has ranked as the second favourite global destination for cross-border investment, having moved up 14 spots to place after London – according to data from Cushman and Wakefield’s annual report on global commercial real estate investment activity.
Beijing’s capital controls, which encourage mainland Chinese investors to concentrate their real estate allocations closer to home, worked in Hong Kong’s favour. According to Knight Frank, last year, the city was the second-largest destination for mainland investment – attracting a whopping US$8.57 billion, up by 61% year on year. In the 12 months ending in June, Hong Kong received US$13.26 billion in cross-border investment, marking a surge of 259.4%.
Chong Tai-leung, associate professor at the Chinese University of Hong Kong, said: “For mainland investors, Hong Kong is a more convenient location for handling their bank affairs, than other places like the US, and it uses a language they know.”
Chong went on to note that the trend is unlikely to come to an end anytime soon, seeing as Hong Kong is able to attract foreign investors without preventing capital outflows.
Catherine Chen, a researcher at Cushman, said that approvals are easier for mainland investors when they are looking to purchase property in the city, than it would be elsewhere. At times, the sole requirement is that funds are “transferred to the companies’ branches in Hong Kong”, said Chen.
The report indicated that Chinese investors’ favoured form of foreign investment was real estate. However, even though they were responsible for the third-highest volume of international real estate investments, cross-border flows only made up 7% of total Chinese investment as investors chose to instead spend domestically.
For instance, in the first half of 2018, there were around 15 office buildings in Hong Kong that were sold to mainland companies, each one worth more than HK$31 billion (US$3.96 billion) according to figures by CBRE.
Carlo Barel di Sant’Albano, head of global capital markets at Cushman, said transaction volumes could exceed current levels by up to 2% next year, given the current environment.
“Indeed, we are seeing many investors increasing their allocations to real estate and they are evolving their strategies to [accommodate risk],” he said. “There is no shortage of capital targeting real estate regardless of the location and risks involved.”
According to Knight Frank, last year, Chinese investors spent about US$44 billion on real estate globally – marking an 11.7% year-on-year increase.
“In recent years, Hong Kong has seen a significant amount of capital raised by subsidiaries of Chinese mainland conglomerates as well as mainland firms listed on the local stock market,” Knight Frank said in a report released on Friday. “This fundraising drive was behind many large acquisitions of commercial buildings and residential development sites in gateway cities such as Hong Kong.”
Francis Li, international director and head of capital markets for Greater China at Cushman, said Chinese investors will still greatly partake in cross-border investment, but that the country itself would “feature more on global buy lists going forward,” which would lead to other regions being considered as investment destinations.
“Tier-1 mainland cities and Hong Kong will be the key [destinations], but a greater share of investment will target decentralised and emerging business districts due to a shortage of opportunities and high prices in the central business districts, as well as new supply and transport improvements in these new areas,” he said.