Property market to rebound in 2019 as investors chase decentralised assets

One notable deal was PAG’s $11.77b acquisition of Mapletree Bay Point in Kwun Tong in February.

Despite Hong Kong sliding from fourth to sixth place as the world’s most liquid investment markets with $35.32b (US$4.5b), and from fourth to fifth place as the world’s largest recipients of cross-border investments, its real estate market is beginning to bounce back from its mild depression in 2018 as investor sentiment rebounds, a report by JLL revealed.

The Global Capital Flows Q1 2019 report, which assessed global commercial real estate markets, found that investor sentiment in Hong Kong has also rebounded, with buyers chasing retail assets located beyond traditional core districts.

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It noted how a recent notable deal was private equity firm PAG’s $11.77b (US$1.5b) acquisition of Mapletree Bay Point in Kwun Tong from Singapore’s Mapletree Investment in February.

“Investor sentiment is optimistic, as the market expects that this positive trend is set to continue. In the months to follow, we believe that industrial properties will outperform in the property investment market, due to new measures in the government’s Revitalisation Scheme,” Joseph Tsang, managing director at JLL in Hong Kong, said.

The central government’s Greater Bay Area (GBA) initiative is also said to be one of the key drivers to the uplift in Hong Kong’s property market, which aims to promote growth by encouraging deeper links between Hong Kong, Macau and the cities of the Pearl River Delta, as local and foreign investors are now targeting assets in the area in order to capitalise on expected future growth.

JLL highlighted how foreign investment increased across China as a whole, with large-scale acquisitions by domestic and foreign groups alike bringing total Q1 investments to $26.69b (US$3.4b), the highest quarterly volume on record.

“The Chinese government’s focus on deleveraging has impacted the availability of credit for local borrowers and pushed some owners to divest assets in order to reduce debt. Coupled with the move to open its financial markets to foreign investors, these have facilitated greater cross-border flows into China,” Stuart Crow, CEO of Asia Pacific Capital Markets at JLL, explained. “In fact, foreign investments into the Chinese market accounted for nearly half of its transaction volumes, mostly from Singapore, the US and global private equity firms.”

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According to the report, foreign buyers invested $20.41 (US$2.6b) in Shanghai, making it the second largest recipient of cross border capital globally. Shenzhen, which is ranked 10th, drew close to $7.85b (US$1b) in foreign investment.

Crow noted that cross-border investors were active particularly in Shanghai as tech, financial and professional services firms continued to chase premium office space, and he forecasts that financial institutions will further accelerate demand and become a major driving force in Shanghai’s leasing market over the next six to 12 months.

“Many investors outside of China are also targeting assets in Shenzhen to capitalise on future growth, thanks to development guidelines by the government to develop the Greater Bay Area,” he said.