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HONG KONG: Commercial property has joined equities as one of the top two assets that the rich and their investment advisers are targeting for investment this year, according to an international study just published.
The study, published by property consultancy Knight Frank and Citi Private Bank, revealed that wealthy investors plan to allocate nearly one-fifth of their investment portfolios in commercial property and another 19% in equities this year.
They are also planning to invest one-tenth of their investments in the residential market.
Forty private investors and 70 investment advisers from across the globe were canvassed in the study in January. Each of the investors had investible assets, excluding their primary residences, valued at over US$10 million (RM30.2 million).
Most wealth advisers said they would recommend that one-fifth of investment portfolios were allocated to equities, with 11% and 5% going to commercial and residential properties respectively.
"Commercial property is a more established investment asset class compared to residential. There is more data available on asset performance, and therefore advisers in particular tend to prefer it," said Liam Bailey, Knight Frank's head of residential research and a contributor to the report.
"Property is a huge and important asset class. Most wealth advisers and their wealthy clients would look to have some exposure to this asset."
Hong Kong and the mainland would also see investors prefer commercial to residential properties this year, DTZ co-head of investment for China Alvin Yip Kwok-ping said.
"In Hong Kong, some buyers have been discouraged from investing in residential properties since the implementation of the special stamp duty last year," Yip said. "So relatively, they would be more interested in commercial property, although both of them are hitting their historic high prices now."
In a bid to curb speculation, the Hong Kong government in November announced an additional stamp duty of between 5% and 15% on residential apartments resold within two years.
Yip said the same argument would apply on the mainland, where the central government had implemented a series of cooling measures to curb soaring flat prices.
The study said Monaco again remained the most expensive residential location in the world, with luxury properties priced at US$65,600 per square metre. Next came London, where a luxury property averaged US$56,300 per square metre.
With an average price tag of US$27,300 for a square metre, Hong Kong homes were the second-most expensive in Asia and ninth worldwide, just behind Tokyo. In last year's survey, Hong Kong was the world's fourth-most expensive city.
Knight Frank's Bailey said the slide in the global ranking was undoubtedly related to the measures adopted by the government.
"In general, there is a view that the measures taken could mean Hong Kong avoids a crash. But there is a recognition that we are in slightly uncharted waters — very few governments have been able to carefully control price growth over time."
Shanghai's luxury property prices rose the most last year, at 21%. Hong Kong ranked seventh in the growth stakes, as its prices for prime residential properties jumped 15% last year. — SCMP
Poor planning puts HK's business status at risk
Analysts warn of serious lack of office space
HONG KONG: A lack of long-term government planning has led to a shortage of office space and high rents, clouding Hong Kong's future as a regional business centre, analysts say.
"Our firm is seeing clients consider moving to places like Singapore, Shenzhen or Guangzhou due to the lack of long-term urban planning in Hong Kong," said Wade Cruickshanks, a partner at built-asset consultancy EC Harris.
Research by consultant CB Richard Ellis (CBRE) underlines the extent of the planning failure. It says new office supply this year will be 1.2 million square feet, compared with an average of two million from 1995 to 2010.
Benedict Ma, associate director in CBRE's research department, said the shortage of new supply was expected to continue for the next three years. The firm estimates there is only 1.2 million sq ft and one million sq ft of new office space in the pipeline for 2012 and 2013, with most of it being in Kowloon East.
"Only three office buildings have been completed in Central this year. None are large-scale developments," Ma said. Among them is the 28-storey 50 Connaught Road Central, developed by National Properties Holdings and Apollo Global Real Estate Management.
About 200 potential tenants — mainly mid-sized businesses — have inquired about renting space in the project. The floors range from 6,000 to 7,000 sq ft.
Nigel Smith, executive director of CBRE's landlord project services department, said asking rents ranged between HK$90 and HK$130 (RM34.97 and RM50.52) per sq ft and 30% of the space had been taken up.
Analysts say the limited new office space and the smaller floors may drive large multinational corporations elsewhere.
Hong Kong has long been attractive as a regional base for such tenants because it is closer to the mainland than Singapore, for instance. But analysts say Singapore has a long-term view of town planning and is expanding its commercial district to attract multinational companies, while Hong Kong has not. That has led to tight supply and high rents.
CBRE says the vacancy rate for office space in Central dropped from 3.9% in the fourth quarter of last year to just 3.7% in the first quarter of this year. Meanwhile, average rents for grade-A office space in Central jumped 35% to HK$111 per sq ft last year.
The firm expects rents will surge a further 24% this year as demand remains strong and the supply pipeline is limited.
"The cost of operating an office in Hong Kong ranks at the top of the world already. If rents continue to go up they will dampen the competitive edge of Hong Kong as an ideal place for companies to set up Asia Pacific headquarters," David Ji, head of research at consultancy DTZ in Greater China, said.
Cruickshanks of EC Harris singles out "significant bureaucratic hurdles" as one reason for the absence of a clear long-term urban planning vision.
"The government should mandate one [authority] to authorise, control and execute planning of an area in Hong Kong, instead of requiring people to co-ordinate with all the different departments that may be involved," he said.
"It should also understand what people want in a city, namely sustainable communities; not just office buildings to meet demand, but communities, which means planning for schools, playgrounds, transport networks, residential projects, sports projects, etc."
Cruickshanks said Kwun Tong was an example of development that was not well co-ordinated.
"The industrial land in the area was released seven or eight years ago for the development of new office buildings," he said. "But if you ask people who work in Kwun Tong now, nobody would say they enjoy working in the area because of its noise pollution and unattractive visual landscape."
The government should tackle a re-design of the urban landscape with greater care when encouraging landlords to convert industrial buildings into offices, he said.
Ji of DTZ said the government should provide suitable commercial sites and have long-term town planning based on market demand for each district.
"For example, financial institutions like to stay in Central, while Kowloon Bay only attracts companies' supporting departments," he said.
Ji urged the government to consider the redevelopment of old districts in order to provide commercial sites in urban areas. — SCMP
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