Against a backdrop of an uncertain global macro environment, one constant continues to drive key Asian property markets: The Chinese buyer.
Mainland China investors, and their growing appetite for overseas assets, have been a key theme for the property market in recent years. But for two of those markets, Hong Kong and Singapore, the pattern of investment is notably different.
In 2016, Chinese groups invested US$5.2 billion (S$7.37 billion) in completed properties and undeveloped land in Hong Kong Island and Kowloon, compared to only about US$600 million in Singapore, based on figures from Real Capital Analytics.
"Chinese investors seem more interested overall in Hong Kong than in Singapore property," David Hand, CEO for Asia Pacific at real estate firm Colliers International, said. "In Hong Kong, Chinese developers and financial institutions have mainly purchased office property, while individual investors have mainly purchased residential property."
Investing in Hong Kong provides these investors a way to hedge against possible further RMB depreciation, but more than that, setting up a headquarters in the city acts as a strategic gateway for Chinese firms expanding beyond the mainland, market watchers said.
David Fong, managing director of Hong Kong property developer and investor Hip Shing Hong, noted a trend of Chinese corporations setting up their headquarters in Hong Kong's central business district, as part of a push to go international. He cited "good governance, anti corruption" and a relatively free economy as hallmarks of Hong Kong, bringing a lot of "intangible value."
Mainland Chinese demand has driven rentals in Hong Kong to new highs. Speaking to CNBC's "Squawk Box Asia," Fong said he expects rentals to increase by double digits in the next two years.
That growth contrasts sharply with Singapore, where sluggish economic growth, driven by weaknesses in the oil and gas sector, finance and shipping, has rippled through the property market. In the fourth quarter of 2016, overall office rents across Singapore slid for the sixth consecutive quarter under the pressure of oversupply and lackluster demand, according to Colliers International's latest Asia Pacific property outlook.
Last year, Chinese individual investors favoured mainly low- to mid-end residential property in Singapore, while Chinese developers also tendered for state and private land for development, mainly in the low to mid-end segment, says Hand.
The city-state is the second of two core markets for Southeast Asia's largest real estate company CapitaLand, after China, and accounts for 36 per cent of its asset base. The company reported full year earnings for 2016 on Wednesday.
While the company recorded higher total profits after tax and minority interests (PATMI) for the financial year, climbing year-over-year 11.7 per cent to S$1,190.3 million, Chairman Ng Kee Choe highlighted the "unpredictable operating environmental and economic headwinds in Singapore and China," which he said he expected to continue weighing on the sector.
Notably absent was the lack of concrete development plans announced for Singapore this year. The developer does not have a presence in Hong Kong.
With rents in Hong Kong's central business district skyrocketing, some companies are setting their sights beyond the city centre. Corporations need to contain the cost of doing business and they will likely move their back offices to less expensive areas like Kowloon East and Wong Chuk Hang, Fong said.
He said he expects the "decentralization trend to continue" with the opening and further development of mass transit networks, which will provide an added convenience. Hand pointed to a similar opportunity for investors in en-bloc and strata-title offices in the decentralized districts, particularly in Kowloon East and West.
Singapore isn't entirely bleak
In the long run, however, Singapore remains a compelling investment destination for real estate companies, given the country's socioeconomic stability and transparent legal and regulatory structure, experts said.
"Residential collective sales offer opportunities for developers, while we believe that any easing of the government's residential cooling measures should provide an impetus for foreign investment in the luxury residential segment in particular," Hand said.