A Chinese joint venture has smashed another property record, this time in Singapore. The sale illustrates how mainland companies are driving up the price of property around Asia. A weakening currency and an economy where growth likely topped out in the first three months of the year are only likely to sustain that trend.
Mainland developers Logan Property Holdings (HK:3380) and the Nanshan Group, which is privately held, joined forces to offer S$1.0 billion ($723 million) for a residential plot in Singapore, the most money ever offered for a development site in the city. The price is also a record pound-for-pound for a residential plot at S$1,050 ($755) per square foot. The Urban Redevelopment Authority must now evaluate the bids before picking a winner.
It's the second record set by Logan in a matter of months. In late February, Logan, based just across the border from me in the tech boomtown of Shenzhen, teamed up with KWG Property Holding (HK:1813) from nearby Guangzhou to drum up HK$19.9 billion ($2.2 billion) for a residential lot in Hong Kong. That site on Ap Lei Chau, or "Duck's Tongue Peninsula," set a record at the time for a lump sum spent on a government land sale in Hong Kong. It comes in at HK$22,118 ($2,840) per square foot.
Chinese developers bought 30% of all land sold by the government in Hong Kong last year. It's a market that they were entirely absent from just half a decade ago.
The interest in Singapore suggests that the long-suffering real estate market there may be about to turn. Prices have been falling since 2013, after the government introduced a series of measures designed to cool housing prices, such as an extra transaction tax for foreigners, widely viewed as steps to deter mainland Chinese buyers. Bu the number of residential transactions rose 18.6% for the first three months of the year, compared with the previous quarter, representing the fastest growth since 2013.
As in Hong Kong, it may be mainland companies that are poised to pounce. Mainland Chinese buyers remain the largest force among the foreign purchasers of homes in Singapore, alongside Malaysians, with foreign purchases up 9.4% in the first quarter, compared with the prior quarter. Foreigners can only buy apartments in Singapore, and are barred from buying "landed properties." But otherwise, there are few restrictions on the flow of funds into the Lion City.
Logan and Nanshan broke a 20-year-old record in Singapore -- and then some -- 32% above the previous high-water mark for land. if successful, the pair beat out Hongkong Land (HNGKY) , in second place with a S$926 million offer, as well as the private Shenyang-founded builder Kingsford Development, which bid S$877 million.
The 955,000-square-foot project can hold as many as 1,160 new homes. And it is very close to the Queenstown stop on Singapore's subway, the MRT. Chinese investors prize such conveniently located purchases.
Singapore developers such as OUE (SG:LJ3), UOL Group (UOLGY) , Frasers Centrepoint (SG:TQ5), Oxley Holdings (SG:5UX), Chip Eng Seng Group (SG:C29) and CSC Holdings (SG:C06) were among the bidders. They now face increased pressure on plot purchase prices, and ultimately margins, if Chinese competitors continue to drive the price of development land higher.
In Hong Kong, Chinese developers have already been much more active than their Hong Kong counterparts. So that's a pattern likely to duplicate in other markets. Singapore is often compared with Hong Kong, so it's a logical next step for foreign expansion.
In Hong Kong, it was a seismic shock when a local developer, Henderson Land Development (HLDCY) , last week spent $3 billion, above even the most-optimistic estimates, on a huge site in Central, Hong Kong's equivalent of Wall Street.
You can think of that successful bid, at $6,400 per square foot, as a blip on the radar. The Murray Road site was the first significant commercial plot to come to market in two decades, since the British handed Hong Kong back to the Chinese in 1997. Henderson is likely to construct a flagship headquarters on the site, as I explained when the deal went down last week.
Expect normal service to resume now, with mainland Chinese companies paying over the odds for residential sites. Often, as is the case with Logan, the Hong Kong purchase is their first step overseas, a way for them to learn how to operate in foreign markets. They then apply that knowledge back within China - and try to sell the property they develop internationally to Chinese investors, too, buyers often all too eager to get money offshore.
The HNA Group, the parent of Hainan Airlines (SH:600221), spent HK$27.2 billion ($3.5 billion) to gobble up four sites over the course of four months at Hong Kong's old airport, Kai Tak, which is about to undergo a massive redevelopment. With the company paying an average of $1,720 per square foot just for the land, home prices nearby have risen by almost half, according to the brokerage Jones Lang LaSalle (JLL) .
China Vanke (HK:2202) and China Overseas Land & Investment (CAOVY) have also been particularly active in Hong Kong, with Vanke recently listing its local subsidiary as a way to access foreign capital markets. But Shimao Property (SHMAY) , Sino-Ocean Land (SIOLY) , Fosun International (FOSUY) and Agile Property (AGPYY) are just a few of the other mainland names that now own interests in Hong Kong.
Singapore was the next record to fall. But Chinese interest has been heavy in most gateway cities, including New York, San Francisco, Sydney and London. Can fresh peaks in those property markets be far away?