Chinese developers blench from Hong Kong property market

Chinese property developers have retreated suddenly from Hong Kong’s flourishing land market, becoming the latest industry to be attacked by Beijing’s capital controls and intensified scrutiny of outbound transactions.

Chinese developers won 11 per cent of bids by value in Hong Kong government land auctions since April, down from about 50 per cent in the previous two years, according to an analysis of official data by Standard & Poor’s, the debt rating agency.

A range of Chinese companies, including debt-laden conglomerate HNA and developer China Vanke, gathered in the Hong Kong property market over the past few years in an effort to capitalize on the rush in prices in the semi-autonomous Chinese territory.

Heavily populated Hong Kong has the world’s most expensive residential property, measured as a proportion of median income, according to Demographia, an urban planning consultancy.

Prices have continued to set record highs, even as the city faces increasing political tensions because of Beijing’s rising intervention and a bad reaction towards democracy activists.

Esther Liu, an analyst at S&P, said the main reason for the retreat of the Chinese developers was the suppression on foreign investment by the Chinese government, which began in late-2016. Beijing has since intensified the crackdown as it tries to stop capital outflows and discipline companies such as HNA that borrowed heavily to fund a muss of overseas deals.

Misses Liu said that Chinese developers were also hindered by the longer development cycle in Hong Kong, compared with mainland China.

She said it usually took six to nine months in China for developers to progress from buying land to launching their first off-plan sales. In Hong Kong, on the other hand, it can take several years to plan the development of the site and obtain the necessary permissions.

Ingrid Cheh, an associate director of research at Jones Lang LaSalle, the real estate services company, said autochthonous developers still have a mandate to plant a flag in Hong Kong in the residential sector.

But she said she believed they would be more prudent than in previous years because of the capital controls. Misses Cheh also expects more mainland developers to enter joint ventures with the big local property developers such as Sun Hung Kai and Cheung Kong, which have traditionally ruled the market.

Even with the retreat of the mainland developers, analysts predict that Hong Kong property prices will continue to grow.

Misses Cheh expects residential prices to jump 10 per cent this year, with the luxury market growing even more powerful.

Misses Liu also forecasts that prices will increase but she believes an expansion in housing supply and the possibility of further interest rate rises will calm the rhythm of growth.