Grosvenor Group Ltd., the real estate company owned by the family trust of Britain’s Duke of Westminster, didn’t go ahead with two property purchases in Hong Kong in the past few months after the sellers pulled out.
Talks for the two residential sites ended without completion, Nicholas Loup, chief executive officer for the Asia-Pacific region at Grosvenor, said in an interview in Beijing on March 22. The property cycle in Hong Kong is “quite advanced,” he said.
“We didn’t proceed with these deals,” Loup said. “We have bid on quite a few deals in the last several months but not concluded any of them for a variety of reasons: Most often, the sellers changed their minds or even raised the price during the documentation stage. At this point in the cycle, it is important to have a clear view of what you are prepared to pay.”
The city is the world’s most expensive place to buy a home, according to London-based Savills Plc. Record-low mortgage rates and an influx of buyers from China drove a 65 percent surge in home prices in the past two years, prompting the government to impose additional property transaction taxes and boost land supply for medium and small housing units to curb prices.
Hong Kong’s home prices rose to a 13-year high in the week ended on March 6, according to Centaline Property Agency Ltd.
“We’ve been looking at Hong Kong, but the cycle is quite advanced,” said Loup. “We are quite cautious in terms of pricing at the moment. The prices have already gone up a lot. You need to be careful.”
Grosvenor was possibly looking at a site on Hong Kong Island and another near the Clear Water Bay area of the Sai Kung district, Loup said in September, declining to give the exact locations.
In Hong Kong, where Grosvenor opened its first Asian office, in 1994, the company develops luxury residential properties. It has Grosvenor Place Repulse Bay and The Westminster Terrace, a project jointly developed with Hong Kong-based Asia Standard International Group Ltd. in Tsuen Wan, a district northwest of the city center.
The number of home sales in Hong Kong surged 30 percent in February from the previous month, according to the Land Registry. The 10,390 sales and purchase agreements registered fetched a combined HK$45.6 billion ($5.9 billion), a 37 percent jump from January and 12 percent more than a year ago, it said.
Hong Kong is “typically a much more cyclical market” and more volatile than China, where more people are willing to pay for properties with cash, David Edwards, regional director for LaSalle Investment Management, said in an interview in Beijing.
“If we look at it as a property clock, I think we’ve probably past nine o’clock,” Edwards said, “To follow the same metaphor, we have a quarter of cycle to go. But in the immediate term, the economy is good and confidence is high, so there’s no reason for an immediate crash.”
Grosvenor said in January it’s aiming to raise at least $270 million for a fund that will invest in properties in China as part of its expansion in Asia. The London-based company has said it wants investments in the region to account for 20 percent of its portfolio, almost triple the current allocation.
‘Forceful’ Land Sales
The city’s government may auction as many as 52 plots of land this year, Hong Kong Financial Secretary John Tsang said in his Feb. 23 budget speech. The land could yield 16,000 units, almost 80 percent higher from last year.
“The government should have started increasing supply and earlier, and they should be more forceful by putting more land into the market,” said Richard van den Berg, managing director of ING Real Estate Investment Asia, which manages 3.8 billion euro ($5.4 billion) of assets in the region.
The city is the world’s most expensive place to buy a home because of a supply shortage, according to a study released by Savills in January.
“Hong Kong is one of the few places where home prices are not very likely to come down,” said Chris Brooke, Beijing-based president and chief executive officer for Asia of CB Richard Ellis Group Inc., the world’s biggest commercial property broker. “The interest rate is a key issue.”
Hong Kong’s currency peg to the U.S. dollar prevents officials from raising interest rates to cool demand.
Home prices in the city fell more than 50 percent after the 1997 peak as the city slid into a recession following the Asian financial crisis. Van den Berg said high-end homes in Hong Kong this year will continue to increase in value, while the mid-priced segment will be little changed.