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Friday, Jul 10, 2020

Hong Kong’s real estate investors head offshore for better returns, as prices and rents decline at home amid a slumping economy

Family offices, as the investment vehicles of ultra-high net worth tycoons are called, have begun to increase their offshore assets to between 20 per cent and 30 per cent of their portfolio, CBRE says. The UK and Australia are becoming increasingly popular for some investors, agents said

Hong Kong’s real estate investors are increasingly looking offshore for better returns on their investments, amid the city’s declining rents and resale prices for office space and retail lots in a slumping economy.

Family offices, as the investment vehicles of ultra-high net worth tycoons are called, have begun to increase their offshore assets to between 20 per cent and 30 per cent of their portfolio, compared with the previous 10 per cent, said CBRE Hong Kong’s capital market executive director Reeves Yan.

“We saw a lot of demand for overseas investment from high net worth individuals and institutional funds since the second half of last year,” as their asset reallocation picked up speed with the deterioration of Hong Kong’s political crisis, he said.

The exodus of investments is likely to pick up pace, as property prices in Hong Kong – the world’s most expensive urban centre for living and work – are expected to fall across all categories this year. Most property consultants expect retail rental fees to drop by 15 per cent in 2020, with London-based property investment manager Nuveen Real Estate forecasting a 40-per cent plunge in office rents.

While Hong Kong’s pegged currency and bank deposits have withstood the headwinds from more than seven months of anti-government protests, the economy’s first technical recession in a decade is dragging down on home prices, office rental charges and has led to a record vacancy rate in high-end retail space.

That has driven many investors offshore in search of better returns. Link Reit, Asia’s biggest real estate investment trust (REIT), paid A$683 million (US$469.5 million) last month for a Grade A office building in Sydney. A day after the deal, K&K Property bought the Orion House in Covent Garden, paying £130 million (US$169.2 million) for the commercial development outside London.

The private family office of Cheung Chung Kiu, the chairman of Hong Kong-listed property developer CC Land, earlier this month paid £210 million for a 45-room mansion in Knightsbridge overlooking Hyde Park, breaking the price record for the most expensive residential property ever sold in the British capital.

“Many family offices in particular may look to move their capital to safe haven markets to protect their wealth,” said JLL’s Asia-Pacific senior research manager Sungmin Park, adding that outbound capital flows will increase if political uncertainties persist in the city.

Hong Kong’s outbound investments in offices, retail space, industrial estates, hotels, mixed-use property dropped 19 per cent to US$7.7 billion last year, from US$9.57 billion in 2018, according to CBRE’s data.

That decline is like to reverse in the coming year, and outbound investments will pick up. Commercial property with existing tenants will be especially sought after as they provide long-term stable income for investors, agents said.

The United Kingdom in particular is becoming increasingly popular as the country’s messy process for exiting the European Union appears to be settling, said Greg Hyland, CBRE’s Asia-Pacific head of capital markets.

“Money in Hong Kong has been aggressively looking at London and Australia as [many investors] are familiar with the markets,” Hyland said.


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