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HKMA Bets on London With Half of $764 Million Mayfair Project

Hong Kong Monetary Authority
Signage for the Hong Kong Monetary Authority (HKMA) is displayed outside Two International Finance Centre (IFC) in the business district of Central in Hong Kong. Photographer: Jerome Favre/Bloomberg

Nov. 8 (Bloomberg) -- Hong Kong’s banking regulator bought 50 percent of a project in London’s luxury-shopping district from Great Portland Estates Plc, adding to a wave of Asian investment in the city. The completed development could be valued at as much as 475 million pounds ($764 million).

Great Portland sold the Hanover Square Estate site for 202 million pounds to a 50-50 joint venture it created with the Hong Kong Monetary Authority that’s developing the property, the London-based real estate investment trust said in a statement yesterday. JPMorgan Chase & Co. analysts estimated the development’s value in a note.

“The partnership will create long-term value,” the HKMA said by e-mail. “Properties in the West End in particular have had a positive growth trajectory underpinned by very limited supply. This project, with its prime location and growth potential, meets our investment criteria.”

The deal adds to an influx of investment in London from Asia. This month, Oxley Holdings Ltd., a Singapore-based property developer, agreed to buy a site in east London where it plans to build 3,400 homes. Hong Kong-based Knight Dragon agreed to buy the remaining 40 percent in a project on the Greenwich Peninsula that will include as many as 10,000 homes from Quintain Estates & Development Plc.

Diversifying Assets

The HKMA, with the world’s eighth-largest foreign-exchange reserves, started seeking diversification as the U.S. Federal Reserve kept interest rates near zero. The Exchange Fund, used by the government to manage the value of the exchange rate, had HK$14 billion in real estate in 2012, HKMA Chief Executive Norman Chan said in January. Chan said in January 2011 that the Exchange Fund had started to diversify its assets, including going into overseas real estate.

“The HKMA invests in London because of diversification, attractive valuation and good return,” Ronald Wan, chief China adviser at Asian Capital Holdings Ltd., which has about $100 million of assets under management, said by phone today. “Investments in stock and bond markets are seen as having higher risks in view of the expected ending of quantitative easing.”

The HKMA has $310 billion in foreign-currency reserves, according to data compiled by Bloomberg. The Hong Kong dollar is pegged to the U.S. currency.

Local Curbs

The de-facto central bank is investing in overseas real estate as the Hong Kong government in February extended curbs to commercial properties to deter speculators.

“The risk for the HKMA is that they might be buying in near the top,” Jim Antos, an analyst at Mizuho Securities Asia Ltd. in Hong Kong, said in an e-mailed reply to questions from Bloomberg News. “However, the London acquisition is at least a hedge against the Hong Kong property market. It is a bit ironic that Hong Kong’s central bank is ‘speculating’ in real estate at a time when the government has enacted a raft of anti-property speculation measures locally.”

The Hanover Square development will include 208,000 square feet (19,000 square meters) of offices, stores and six apartments between Bond Street and Hanover Square.

The deal “is a strong endorsement of this project’s potential,” Great Portland Chief Executive Officer Toby Courtauld said in the statement.

To contact the reporters on this story: Neil Callanan in London at ncallanan@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net

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