Last Update : 2018-11-04
Hong Kong Office Property Market Hysteria – Investors remain unstoppable while rental yield goes down
Comparing the yielding rate to government bonds, Hong Kong Office Market is probably one of the worse investments in the world. Nevertheless, investors don't care!!!
Due to Chinese investors' interminable demand of skyscrapers, insanity price has been created again and again over the past few years. The rental yielding rate has reached the lowest in the past 30 years. This is the only former British Colony with rental yield lower than that of the United State 10-year Treasury Bond. Meaning many investors don't calculate the profit because they don't care about it at all.
According to the South China Morning Post, a subsidiary company of China Taiping Insurance Group bought the whole brand-new office building in North Point. The price broke the transaction record in Hong Kong. In addition, a co-investment partner comprises both Hong Kong and China investors bought the 73rd floor of The Centre with USD5.2 Billion. Once again, it became the largest transaction in the history of Hong Kong Office Property Market.
Among 13 transactions that exceed USD5 Billion, 7 buyers were from China while 6 were from Hong Kong. In the first half of 2018, the growth of Chinese investors in Commercial Property was 147%. At the same time, its investments in the United States, United Kingdom, Australia and South East Asia have decreased.
In order to acquire a stable and high-quality working space, a high premium is inevitable. This also explains why the dividend yield is so low. Ultimately, tenants will have no options but pay a high price to secure their offices for 20-30 years in the future because land supply is a very big problem in Hong Kong.
On the opposite, Cheung Kong Holdings, the Seller of The Centre is acquiring overseas properties such as the headquarter of UBS Group in London.
Investors have been implementing various measures against the risk of decreasing property price. They will continue to invest in high return rate cities, for instance, London. The mainland Chinese buyers only aim to invest their capital in familiar cities to diversify the risks. Again, they do not care too much about the return. This action further pushes down the yielding rate.
Some people think that this is a turning point. Since the growth of the rental price is almost catching up with the construction price, the yielding rate is probably reaching the bottom and bounce back. Some parties, on the other hand, think that the property market has to be crushed by external effects before yielding rate springs back.
The economic gravity will finally stimulate the market as usual. The traditional behaviour of Hong Kong's Property Market is either plummet or surge drastically.