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Fast Track China-Hong Kong Integration Drives Emergence of Mega-metropolis

August 27, 2014, Hong KongFast moving economic development in the Greater Pearl River Delta (GPRD) Economic Zone is paving the way for an Asia mega-metropolis. With cross-border footprints by MNCs growing continuously, and large infrastructure link projects activating, the area is likely to attract increasing interest from investors, said CBRE, at the Greater China Roadshow event series, held today in Shanghai.

The CBRE Greater China Roadshow, an information sharing event series, prepared for CBRE’s Mainland and Hong Kong based corporate clients, is the first of its kind to share market insight on challenges affecting both Hong Kong and China’s real estate markets concurrently. The first event was held in Beijing on Monday and the event series will carry on to Shanghai, Guangzhou and Hong Kong over the course of one week.

A Policy Driven Story – Key Support From Central Government

The GPRD economic zone, containing nine cities and two Special Administrative Regions is in the process of being integrated into a new economic hub, as directed by Chinese leadership’s long term steering plan through the last 20 years.

The region plays an important role in China’s growth. In 2013 alone, the region generated approximately 12% of the total GDP for the entire country. With an economic size similar to Korea and Indonesia together, the future economic contribution of the region cannot be overlooked.

The growing importance of the region as a key investment hub is validated by a number of influential economic policies put forward by the Central Government including CEPA, the Individual Visit Scheme, QDII, QFII, offshore RMB interbank currency as well as the soon-to-be implemented Shanghai-Hong Kong Stock Connect. All policies aim to drive equitable growth in the region.

Cross Border Real Estate Footprints

Behind the scenes on all policies lies the mission of “cross-border integration” between Hong Kong and China, a key element to boosting economic growth in the real estate industry. Hong Kong developers are acting fast to tap into the mainland market. Among the top ten most active Hong Kong developers investing in China, the amount of investment properties in China accounted for about one quarter of their total income contribution in 2013. Out of the 14 million sq. m. of Grade A office space in Tier-1 cities in China, about 18% is fully owned by Hong Kong developers.

We see that Hong Kong firms entering into China will bring added value to our own capabilities. Along with their well-established brand profile, Hong Kong firms are also contributing their international experience, professional knowhow, and advanced technology, which will help China to upgrade its industry infrastructure,” said Frank Chen, Head of Research, CBRE Greater China.

With regard to commercial leasing, there is also a growing footprint of mainland occupiers in Hong Kong’s commercial market. The amount of Chinese corporates occupying Grade A office space increased from 13% in 2008, to 21% in 2014. Some developers are also indicating their growing appetite by increasing their investment portfolio through office acquisitions.

The increasing footprint of Chinese corporates is a positive sign for the development of the Hong Kong commercial real estate market. There is enormous investment potential in mainland corporations, which may also gear up activities in other sectors. With the Shanghai-Hong Kong Stock Connect to be launched in October this year, it is likely that there will be more China corporates entering the local market, bringing extra spins offs for Hong Kong’s banking and finance sector,” said Marcos Chan, Head of Research, CBRE Hong Kong, Macau and Taiwan.

More Cohesive GPRD Integration

Cohesive integration in the GPRD Economic Zone will increase in coming years as infrastructure link projects complete. Not only will all key cities in the GPRD economic zone be linked by intercity railway, but there will be a close connectivity of east to west via the HK-Zhuhai-Macau Bridge. With these links set, the framework for a mega-metropolis will emerge.

Key future strategic hubs of the PRD to support the emergence of the mega-metropolis include Qianhai as a pioneer financial hub; Macau and Hengqin as vibrant tourism hubs; Pearl River New City as a new PRD financial hub in Guangzhou; and Lantau as a new bridgehead economy for Hong Kong.

The improving integration among these areas will continue to stimulate commercial investment. In fact, investment volume for commercial properties in the PRD region has seen a growing share in China’s context, growing from a share of approximately 1% of total investment across China and Hong Kong (US$74m equivalent) in 2007, to a 15% share in 2013 (US$3b equivalent). CBRE expects this trend will continue.

Improved cross-border efficiencies between cities will facilitate more capital flows in and out. Under the GPRD economic zone, Hong Kong will become the Gateway for China to facilitate the outflow of Chinese capital for overseas expansion, given that it is regarded as a convenient and trustworthy springboard to go abroad. China will grow as one of the most dynamic foreign investment hotspots in the world,” said Chan.

The GPRD economic zone will no doubt open doors for massive multinational investments,” Chan added. “Cross-border dual flow capital will support the GPRD economic zone’s position as a rising star in the global real estate investment scene - a place where developers, investors and occupiers can enjoy diversified investment options and a good return.”

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