Local investors back in the market for big deals

HONG KONG: Local investors have replaced foreign investment funds to become the most active players in Hong Kong's large lump-sum property investment market.

Until recently investment funds from the United States and Europe were the key buyers of Hong Kong properties worth more than HK$1 billion (RM411.37 million), property agents said. Dominant among them were those operated by global investment banks such as Morgan Stanley, Macquarie, GIC and Merrill Lynch.

In the past 10 years most of these transactions, such as the deals to acquire Hang Seng Building, Vicwood Plaza, Grand Millennium Plaza in Sheung Wan and Kowloon City Plaza, were done by these players.

However, the picture has changed in recent months. Two weeks ago, Lee Kum Kee, Hong Kong's biggest sauce and condiment maker, bought Vicwood Plaza in Sheung Wan from Macquarie Global Property Advisors for more than HK$4 billion. This is the largest property transaction so far this year. It also underlined how local buyers were becoming more aggressive in their acquisitions compared with foreign investment funds, agents said.

Another example was the acquisition by Cheung Kong Group's ARA, a real estate fund management company, of Manulife Tower in North Point for HK$2.25 billion last month.

Local investors are also targeting luxury residential projects, a sector that has outperformed commercial and industrial properties in terms of price growth in recent years.

In the second quarter, two luxury residential sites at 6-16 Peel Rise on The Peak, and 39A Shouson Hill Road in Southern district, were bought by Stanley Ho Hung-sun's fourth wife Angela Leong On-kei and another local investor, for HK$1.098 billion and HK$1.15 billion respectively.

Among offshore investors that remain in the market, Singapore investment funds have meanwhile become more active than their counterparts in Europe and the United States. A Singapore real estate fund is currently seeking loans for the acquisition of an 80% stake in PCCW Tower in Quarry Bay, according to debt markets newsletter Basis Point. Property agents said the 40-storey office building was worth about HK$4 billion.

Another property fund is also seeking financing to buy 625 King's Road, an office building in North Point jointly owned by Swire Properties and China Motor Bus.

A director at a US-based real estate fund agreed that funds from Southeast Asia were now playing a more active role in Hong Kong's property market. "It's not easy to raise funds in the United States or Europe this year as their economies are still performing poorly. Fund sizes are lower than before and some medium-sized funds have even been redeemed," he said.

Given their tighter budgets and financing constraints, many funds from Europe and the United States had shifted their focus to China and Macau, he added.

"A few real estate funds from Britain are investing actively in Macau. They think first-tier China cities and Macau will have a higher upside potential in capital value compared with Hong Kong." he said. "For two billion yuan to three billion yuan (RM942.63 million to RM1.41 billion), China offers a lot of choice of properties, which is hard to find in Hong Kong,"

Another director at a private equity property fund pointed out that funds were usually attracted to deals that offered substantial upside potential in their capital values. "But property prices in Hong Kong have risen to high levels already."

Antonio Wu, regional director at property consultancy Colliers International, said fund managers were driven to seek higher returns on their deals, particularly in the wake of the global financial crisis which had changed buying habits. He said investors were now looking for returns of 20% from the 10%-15% they were satisfied with previously.

But they were also looking for lower investment risk, which makes them more cautious on property markets where the outlook remains uncertain.

"In the Hong Kong market, medium-sized funds from the US are relatively more active than the larger funds," he said, adding that large property funds from the US and Europe were looking for investment opportunities in China and in Japan and Australia. — South China Morning Post
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