Has Chinese Investment Affected Hong Kong Property Prices Since 1997?

Posted: Jul 27 2017Last Updated: Jul 27 2017
28 July 2017 - According to the HKMA, twenty years after the British handed Hong Kong over to China, property prices have continued to soar in unprecedented ways, surpassing its previous peaks in 2015 and 1997. In April, Hong Kong residential property prices rose continuously for 13 months in a row, recording a 2.1 percent increase in the monthly home price index from 320.6 in March to 327.4 in April, and a 19.8 percent surge in real estate prices from last year, according to data from the Rating & Valuation Department.  Being the world’s most expensive housing market, the vigorous real estate sector contributed 5 percent to the city’s gross domestic product (GDP) in 2015. Nonetheless, the growth of the residential market in Hong Kong is susceptible to changes in global economy and Chinese investment after 1997.
Since 2010, Chinese developers have zealously expanded their share of properties in Hong Kong. While local developers had virtually monopolized the land-buying scene in Hong Kong pre-2010, Chinese developers have become increasingly aggressive in recent years. From 2011 to 2016, the percentage of land bought by Chinese developers – including government land sales and the public tender for projects invited by the Urban Redevelopment Authority and MTR Corporation – escalated from 1 percent to 21.7 percent, whereby in 2016 alone, Chinese developers splashed out more than HK$58 billion on major office buildings and residential sites in Hong Kong.  Riding the precipitously upward trend of buying land in Hong Kong, earlier this year, the Chinese venture between Logan Property Holdings and KWG Property Holding made a record-breaking purchase of the residential land in Ap Lei Chau, which fetched HK$ 16.9 billion, astounding the entire property sector in Hong Kong.  Since the beginning of 2016, mainland investors have already acquired 53 percent of the HK$95-billion local government land sales, with experts commenting that the Chinese developers would continue to grow in size in the Hong Kong real estate market.  
The rocketing of Chinese investment in Hong Kong properties could be attributed to Yuan depreciation, which drove Mainland capital towards international markets in order to hedge against a weakening RMB. With the Hong Kong dollar pegged to the US currency and its proximity to China, Hong Kong remains an enticing and relatively stable investment destination amid growing uncertainties in the Eurozone economy post-Brexit. Despite capital control measures imposed by the Central Government, Chinese buyers remain remarkably active in Hong Kong’s luxury residential market. In the first quarter of this year, property agents and developers admitted that the majority of deals in the luxury residential market were closed by wealthy investors across the border and drove up local property values by 24 percent.  Among the five biggest transactions on luxury houses in Hong Kong within the first three months, three of the registered buyers are believed to be from Chinese background, according to records from the Land Registry.
As the fear of Yuan depreciation persists, purchasing land and property in Hong Kong will continue to be a lucrative option for Chinese tycoons looking for wealth protection measures. The recent sale of the Ap Lei Chau site is a prime example of how property prices are driven up in order to recoup the initial massive investment. Unit prices in the Ap Lei Chau site are projected to be HK$23,000 per square foot. As the devaluation of RMB perpetuates, Chinese buyers will continue hedging in Hong Kong’s real estate market, maintaining local property prices at a staggering level. 

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