China takes top spot for private equity property investment in Asia in Q1, while Hong Kong finds itself in dogfight with India
- Hong Kong places third in Asia for PE property investment in Q1, outpaced by India
- In mainland, office segment favoured; in Hong Kong, community malls prove popular
Global private equity funds – the most agile investor in the cross-border real estate world – poured US$5.1 billion into China and Hong Kong property in the first quarter of this year, making the spots the top and third most favoured destinations respectively in Asia, according to Knight Frank.
China absorbed US$3.6 billion of private equity capital in the first quarter while Hong Kong took in US$1.53 billion. By comparison, $1.56 billion went to second-placed India and $1.3 billion to Japan, according to a report by the global real estate service firm released on Monday.
The quarter means China has already surpassed its PE property investment for all of 2018 – US$2.99 billion – while Hong Kong is well on its way to its US$3.22 billion for the full-year period, according to numbers provided by Knight Frank.
“PE investment acts as a leading indicator for cross-border capital flows. Traditional players like insurers, sovereign funds, corporation may trump it in deal value, but PE investments are most agile in sniffing the latest trend,” said David Ji, head of research & consultancy of Knight Frank Greater China.
The investment interest came in spite of the US-China trade war, with most of the capital going into China from Hong Kong and Singapore, which have deep investment experience and footprints on the mainland, according to Knight Frank.
Paul Hart, head of commercial, Greater China, Knight Frank, added, “Globally the United States, United Kingdom and Europe remain the most favourite destination in terms of cross-border investment by value, but Hong Kong and China are emerging fast. At least so far in 2019, the external uncertainties have not fully shown in the volume as many of the investments are ongoing.”
Last year, the top destination for all cross-border propertyinvestment (PE and other institutions included) was the US, which drew in US$90.5 billion, according to Real Capital Analytics data, followed by the UK with US$37.4 billion.
China and Hong Kong ranked eighth and ninth respectively for 2018, topping all other Asian nations.
Knight Frank’s finding echoed an earlier survey by CBRE, which showed China has overtaken Australia as the top destination in Asia-Pacific for cross-border commercial property investments. Over a quarter of the 348 global investors polled said they were interested in China, up 3.7 percentage points from a year ago.
In Hong Kong, a high-profile example of PE investment interest is Gaw Capital’s US$605 million acquisition of an office in North Point from Swire Properties and China Motor Bus last month. Gaw Capital in December aligned Goldman Sachs and Blackstone to pay $1.53 billion for a portfolio of 12 shopping centres in Hong Kong from Link Reit.
In China, Brookfield Asset Management bought the mixed-use Greenland Huangpu Centre in Shanghai from Greenland Holdings for about US$1.55 billion yuan in April. A PE consortium bought the Sino Horizon office portfolio in Beijing for US$1.3 billion in March.
Looking forward, Knight Frank expects PE investment to be “sector-focused” rather than geographically focused. Proptech – the convergence of property and technology – data centres, specific sub-sectors of industrials such as cold storage, as well as senior housing and student flats could see increased PE interest. A conclusion to the Brexit saga in the UK may result in a focus to London as investors seek long-term safe haven, it said.
Ji said he does not expect uncertainties around the US-China trade war to shake PE interest in China for the time being, since most offshore inflow into China is from Hong Kong and Singapore.
“For foreign newcomers, the uncertainties would lengthen their decision time, but theyfocus on assets such as logistics, which is underpinned by domestic demand,” he said.
In the second quarter as of June 11, $2.07 billion worth of real estate deals in mainland China have been completed, while another $3.6 billion deals are in the contract stage, according to Real Capital Analytics.
