For decades, Hong Kong’s richest families have dominated the city’s property market, through their giant conglomerates that control apartments and shopping malls. But now they are losing their grip on new land deals, thanks to newcomers from mainland China who are winning government-related bids at a record pace.
In the first half of this year, Chinese developers bought HK$9.8 billion ($1.3 billion) worth of public land sites in Hong Kong, making up of 45% of total public land sales during the period, according to brokerage firm CLSA. That compares to 24% of total public land sales last year.
Meanwhile, Hong Kong property companies are losing out. Only one of Hong Kong’s five biggest developers won a land deal during the first half. Traditionally, the city’s big five—Sun Hung Kai Properties, Cheung Kong Property, New World Development, Sino Land and Kerry Properties—dominated the local land market.
Here’s what the turnaround looks like, thanks to data from Nicole Wong, CLSA’s Hong Kong regional head of property research:
The timing of Chinese developers’ expansion in Hong Kong may seem perplexing. After all, Hong Kong’s housing market is weak: Home sales hit a 25-year low in February. While pre-owned home prices have recovered slightly in recent months, they’re still down 7% from last September’s peak.
But Hong Kong home prices are so high that “doing one project in Hong Kong is as good as doing ten projects in second tier cities” in mainland China, said Wong during a Sept. 20 media conference.
Wong theorizes that the average home price in Hong Kong is around 100,000 yuan per sq m, about 10 times higher than that in China’s second-tier cities, where the majority of mainland developers’ growth now comes from. In 2012, after China’s real estate market slowed down for the first time, mainland developers’ purchases in Hong Kong first spiked. A weaker yuan is also likely “one of the biggest push factors” for another buying spree since 2015, she adds.