High rents in Central, Hong Kong force foreign banks to leave
Hong Kong bankers encounter a unique problem when taking overseas customers to visit the city: convince them that walking to the meeting place is easier than renting a limousine. Among the world’s financial centers, the compactness of this central business district is unique, and Hong Kong has always been proud of, even if it brings the world’s most expensive office rents.
International bankers used to push up office rents in Hong Kong, but now they have become mainland Chinese companies. Hong Kong is no stranger to the bubble blown by China, and it is speculating how long the bubble will last. More and more bankers are being forced to move to less central locations, and they will have to choose between taxis and traffic jams and MTR.
PricewaterhouseCoopers (PwC) said that to rent the high-rises of Hong Kong's Grade A office buildings, companies must pay a rent of US$279 per square foot per year. This is 75% higher than the $158 rental price in New York, the world's second most expensive city. Tokyo is 150 U.S. dollars, London is 114 U.S. dollars, San Francisco is 113 U.S. dollars, these 5 cities are the 5 most expensive cities in the world for office rent. According to data from the real estate professional firm Jones Lang LaSalle, Chinese conglomerates accounted for a record 43% of the rented space in Hong Kong’s Central office last year, which is twice the ratio five years ago.
The demand is driven by mainland Chinese financial groups, including smaller banks, fund managers, and brokerage firms, which are following customers’ interest in the growing financial exchanges between Hong Kong and the Mainland, such as trading mechanisms such as Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect.
Leasing activities are active. The mainland conglomerate HNA Group, which has a strong desire for mergers and acquisitions, recently nearly doubled its leased office space in the Two International Finance Centre, a Grade A office building in Hong Kong, at a rent of US$270 per square foot. This 88-story building has an invincible sea view of Victoria Harbour, and renting office space here is regarded as a symbol of success and strong financial resources.
A commercial real estate investor said when talking about the relatively small-scale 39-story Phase I project of the International Finance Center: “Mainland companies really only want to rent Phase II of the International Finance Center. Even the first phase is not good enough. It must be a sign. Sexual."
The enthusiasm of mainland Chinese companies extends to the entire office building. Last year, the state-owned conglomerate Everbright and the real estate developer Evergrande each bought office buildings in Central for a total of US$2.9 billion, making it the most expensive commercial real estate transaction in Hong Kong. Companies that recently purchased office buildings outside of Central said that mainland buyers quickly expressed interest.
While the mainland Chinese business community is showing interest in the Hong Kong office market, multinational corporations are shrinking and remain cautious. "From the perspective of the Hong Kong stock market and the global market, I am not sure whether they are strong enough to prompt multinational banks to invest again in this world's most expensive office area," said Charles Wong, Asia Director of AMP Capital, a listed real estate company. , "There is no other gateway city in the world like Hong Kong, where the rent gap between different locations is so huge."
The rents in the eastern part of Hong Kong Island or even the Kowloon East area near the former Kai Tak Airport on the other side of Victoria Harbour are half or even lower than those in Central. In 2014, Citigroup bought a 21-story office building in Kowloon East for HK$5.4 billion (US$699 million), and moved to the bank last year with 3,000 employees. At the same time, many Citi employees vehemently opposed and were unwilling to move out of Central. The bank’s downsizing in Central meant that the name of the building was no longer Citibank Plaza.
In January, Freshfields Bruckhaus Deringer (Freshfields Bruckhaus Deringer) became the first top law firm that plans to completely withdraw from Central, and will lease a new office location in the east of Central from 2018. Fund management company AllianceBernstein is doing the same. "Ten years ago, multinational companies did not consider outside Central at all," said Paul Yien, the regional director of the Hong Kong market for Jones Lang LaSalle. He believes that these measures are slowly changing the face of Hong Kong. "The entire Victoria Harbour will become the core business district."
Not so long ago, in 2010, Deutsche Bank, Morgan Stanley and Credit Suisse were still demanding substantial rent reductions to compensate for the move from Central to Kowloon across from Victoria Harbour. , The trouble of becoming the main tenant of the brand-new skyscraper office there. Bankers in Central still often describe the process of reaching the 109-floor International Commerce Centre (less than 15 minutes by MTR) as “going to the dark side”, but initially predicted a massive loss of employees Not fulfilled.
Given that there are no signs of slowing demand in mainland China, few analysts believe that rents will fall soon, which means that the trend of leaving Central will continue. Those bankers, lawyers and fund managers who feel forced to relocate have to comfort themselves: MTR's 4G mobile coverage is great. The taxi driver still knows where the former "Citi Center Plaza" is.
Hong Kong housing prices remain high
After a brief correction, the Hong Kong property market has heated up again.
According to data released by Centaline Property, in the week of February 13-19, the "Central Plains City Leading Index", which measures the price of second-hand housing in Hong Kong, rose to 147.74, a record high. Wong Leung-Sing, head of the research department of Centaline Real Estate, said that the housing and investment demand is high, and the Hong Kong property market is now quite hot. He believes that although the local government said that interest rates will rise and the supply of the property market will increase, it still cannot stop people's enthusiasm for buying houses.
The previous record high of the "Central Plains City Leading Index" appeared in September 2015, and then it fell all the way, and fell to the bottom in March 2016. Since March 2016, the index has risen 16% so far.
This has also allowed Hong Kong to continue to be the most unaffordable city in the world for housing prices. According to the international housing price affordability survey published by the American market research agency Demographia earlier this year, Hong Kong has ranked first among the most difficult-to-afford cities for the seventh consecutive year.
The survey showed that the median house price in Hong Kong last year was 18.1 times the median annual household income (before tax), the highest in the world, but it was an improvement from 19 times last year. Last year, this value set a record for 12 years in the Demographia survey.
Faced with the problem of high housing prices, on November 5 last year, the Hong Kong Special Administrative Region Government offered a "hot trick", announcing a comprehensive increase in the ad valorem stamp duty for residential transactions, and the tax rate was raised to 15%. Regardless of whether an individual or a company purchases a second house, it will 15% stamp duty is required. Hong Kong permanent residents who are first time home buyers and exchanging houses are exempted.
One of Hong Kong’s wealthiest tycoons warned that Hong Kong developers could not compete with large-scale mainland competitors. At present, housing prices in the world's most difficult market for home purchases have soared to higher and higher levels.
Boosted by mainland developers
In November last year, Lui Che-woo lost to a subsidiary of the mainland conglomerate HNA Group, which was bidding for a similar land in 2014, when he was bidding for a land in Hong Kong. Twice the price.
The land is sold at 13,500 Hong Kong dollars (US$1,740) per square foot, which is equivalent to the market price of completed apartments nearby.
Lu Zhihe said: "It is difficult for local companies like us to bid for this kind of land. Mainland companies have the ability to bid, but we can't." According to Forbes data, the real estate and gaming industry tycoon Lu Zhihe is worth more than 11 billion. US dollars.
In global cities ranging from Vancouver and Sydney to New York and London, the surge in home sales to wealthy Chinese investors has raised concerns about market distortions. Now Chinese developers are also participating. Due to the depreciation of the renminbi, people deliberately transferring capital out of the mainland, and the government's increase in curbing mainland real estate investment, the land plots bought by mainland developers in Hong Kong have increased sharply.
Real estate information service website Spacious estimates that mainland developers accounted for 44% of residential land sold by the Hong Kong government in 2015, compared with only 7% in 2012. As of November last year, mainland companies had acquired 39% of the auction land.
James Fisher, Marketing Research Director of Spacious, said: “In addition to the devaluation of the RMB, the reasons why Chinese developers are acquiring large amounts of land in Hong Kong are due to the low tax rate in Hong Kong, high land prices in the Mainland, and comparison with other overseas markets. , It’s easier to get financing in Hong Kong."
Hong Kong is a densely populated special administrative region with a population of 7 million. Although the economic prospects of the region have deteriorated, the real estate market is heating up. Government data shows that after a brief decline, housing prices have rebounded, approaching the highest record set in September the previous year.
The depreciation of the renminbi and investors’ desire to find higher investment returns from abroad have prompted capital to flow into Hong Kong’s residential and office market. Last year, leading mainland companies Evergrande and Everbright spent more than US$1 billion to acquire skyscrapers in Hong Kong. .
According to data from the financial services group PricewaterhouseCoopers (PwC) and the research institution Urban Land Institute (Urban Land Institute), in the first half of last year, the inflow of funds from the Mainland made Hong Kong the second most active business in Asia after Tokyo. In the real estate market, the transaction value reached US$6.8 billion, a year-on-year increase of 17%.
At the same time, commercial rents continue to soar due to rising interest from mainland companies. Office rents on the upper floors of Hong Kong’s high-end skyscrapers reach US$278.5 per square foot, which is the most expensive in the world and almost twice that of Tokyo, the second most expensive city, and New York, the third most expensive city.
PricewaterhouseCoopers (PwC) real estate and tax expert Su Guoji (KK So) said: “Some mainland investors believe that it is good to own some properties in a large financial center like Hong Kong, especially if they can find iconic buildings, Then connect your name to it."
Lu Zhihe said that high housing prices are the "biggest problem" facing Hong Kong, but he is not sure whether the government's recent decision to increase stamp duty on second-hand home buyers will play an ideal role in stabilizing the market. He said: "I need to observe the situation in the next few months."
Su Guoji is also not sure.
He said: "The government is trying to appease the people of Hong Kong, saying that real estate supply will remain stable in the next few years."
"But are these enough to meet the needs of local buyers, locals with investment needs, and overseas investors (especially investors from the Mainland)?"