Commercial property deals to beat 2020 levels

HK STRUGGLES IN PARTS OF CORPORATE GOVERNANCE

Hong Kong needs to make some adjustments in some areas of corporate governance as it continues to struggle in aspects, such as whistleblowing and the extent of its anti-graft enforcement, according to the Asian Corporate Governance Association (ACGA).

In ACGA’s 2020 Corporate Governance Watch, Hong Kong maintained its ranking at the second place, which it shared with Singapore. Hong Kong received a slightly higher score of 63.5%, reflecting a 3.5 percentage point increase from its score in 2018.

Despite ranking second, ACGA said Hong Kong is still well below where it should be at this stage.

“At the risk of repeating themes from our last few CG Watch reports, Hong Kong is at its most determined when addressing regulatory and enforcement issues, but loses its nerve when it comes to driving fundamental improvements in company governance,” the report read.

“Issuers are treated with kid gloves, especially when it comes to amending the CG Code.”

The study observed that even after 20 years of reform, the corporate sector has shown limited willingness to adapt to high governance standards.

“Compliance with the Hong Kong CG Code may be high in a formal sense, yet the cultural mindset among many family businesses is one of conservatism regarding new CG ideas,” the study added.

It noted Hong Kong’s policies that protect whistleblowers are still limited, unlike the United Kingdom and Australia that have long provided for anonymous reporting and identity protection.

It also lacked cross-border jurisdiction, considering it has no sanctions for bribery outside of Hong Kong.

Meanwhile, ACGA saw improvements by the Hong Kong Monetary Authority (HKMA) on responsible investment and stewardship, which in turn sparked a bit more action among domestic investors. It also lauded HKMA on the creation of an independent audit oversight board that gave a boost to the country’s scoring.

Commercial property deals in Hong Kong are expected to bounce back by year-end

Commercial property deals to beat 2020 levels

The pandemic dampened investment demand in the real estate industry last year, as could be seen in the drop in investment volume for 2020. For this year, the industry is expected to see investment activity in the city to rebound, which will likely be driven largely by private equity.

Cushman & Wakefield projected that real estate investments across Asia Pacific are expected to reach US$165b, approximately around $1.29t, in 2021, after declining 29% year-on-year in 2020.

Zeroing in on Hong Kong, commercial property deals are also expected to bounce back to around 80 deals by the end of the year.

“We expect the transaction volume in 2021 will surpass that in 2020, reaching around 80 deals and $30b by year end,” Tom Ko, Cushman & Wakefield’s Executive Director, Capital Markets, Hong Kong, told Hong Kong Business.

“That’s a transaction volume comparable to 2009, when the market was walking out from the Global Financial Crisis.”

In the first quarter of this 2021 alone, Cushman & Wakefield has

While the market is gaining momentum, the major challenge remains the prevailing travel restrictions

recorded a total consideration of $7b, involving 21 commercial real estate transactions with ticket size of at least $100m.

Ko noted private equity real estate (PERE) funds will be amongst the major drivers in Hong Kong as investors look to deploy their funds after a “muted year in 2020.”

He added more capital is expected both from Hong Kong and overseas in the latter part of the year as COVID-19 cases stabilise.

Despite projected increase in investment volumes, however, Cushman & Wakefiled sees Hong Kong’s commercial real estate market will remain challenged in light of the continuing travel restrictions.

“While the market is gaining momentum, the major challenge remains the prevailing travel restrictions which keep mainland and international investors away from the city,” Ko said.

“Meanwhile, economic uncertainty drives polar views on how the CRE market will play out in the near term.” He noted the widening price expectations may also be another factor that could halt transactions.

Whilst uncertainty lingers over Hong Kong in the medium term, the property firm sees a promising longterm prospect. The firm has so far seen some institutional developers acquiring en-bloc industrial buildings for redevelopment for residential or commercial use.

Cushman & Wakefield has also received enquiries for data centre opportunities, which Ko said was “not surprising” with the advent of the 5G era.

Moreover, Ko said the firm welcomes the government’s new land premium pilot scheme, expected to encourage revitalization of industrial buildings, particularly those in right zonings.

The scheme allows owners of industrial properties built earlier than 1987 to pay a standard land premium rate for lease modifications to facilitate building redevelopment.

“We welcome the pilot scheme as it provides clarity for investment decisions and significant time and cost savings,” he said.