Real Estate Income From Technology Parks And Innovation Hubs – The agreement with Shenzhen on the joint development of the innovation and technology park provides for earning a lot of money on real estate development and the transfer of land under the jurisdiction of Hong Kong.
Startups in China’s IT hub Shenzhen have warned that it may take too long for Hong Kong to build a joint innovation and technology park on the border of Lok Ma Chau, given how fast the sector is developing.
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Let’s figure it out. It’s not about innovation and technology. It’s about real estate development and a smart idea to transfer land from Shenzhen to Hong Kong jurisdiction and make a lot of money from it.
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Lok Ma Chau Loop is an 87-hectare piece of land that used to be on the Shenzhen side of the river until the river loop was straightened and ended up on the Hong Kong side of the river. It was then transferred to the jurisdiction of Hong Kong.
Almost immediately, there were cries from Shenzhen that it should be intensively developed. It was once a heavy equipment showroom, then an office area, and now an innovation and technology hub.
However, strangely enough, while our government regularly announces new plans for development permits, the immediate owners of the land have never been identified, either by themselves or by our government officials.
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One suspects it belongs to a team of Shenzhen tycoons who believe they can make more money selling Hong Kong assets than Shenzhen assets and are increasingly frustrated by the delays. But we don’t know for sure. Everything is confusing, all official negotiations between the representatives of the owners and our government take place behind closed doors.
Delays due to problems. The biggest of these is that the loop was previously used as a dumping ground for about a million cubic meters of sludge contaminated with various toxic metals and other hazardous substances.
Doing nothing about it is not an option. This is Hong Kong. We have more environmental strictures than Shenzhen. But we cannot dig it up again and throw it into the sea. Hong Kong is a signatory to the London Convention on Marine Pollution, which expressly prohibits this type of pollution.
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There are more problems. The only road connection is a one-lane track, there is no electricity, no water, no sewage, no services, and all this will cost a lot of money.
So when the future of the Ma Chau loop was debated 10 years ago as part of the 2030 Grand Strategy planning public consultation, the public reaction was that the loop should be left as is.
As I said, it was a public outcry. The owners, whoever they are, do not show themselves publicly. They are engaged in private business.
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But the public’s reaction was unequivocally correct. Why spend so much of Hong Kong’s funds on maintaining a remote and uninhabited land on the border under the illusion that it is the perfect place for high-tech creative ideas to grow?
Answer: Because it is not about hi-tech. We are talking about low technology. We are talking about pouring concrete and selling the resulting square meters with huge profits either to private speculators or to the Hong Kong government, led into the illusion that this is hi-tech in the mud.
And now there are “startups” in Shenzhen (the group is defined as the owners of Loop) arguing that we are building these new centers too soon or too late. Why late? Will the entire high-tech sector die out next year?
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I think the “startups” want immediate access to heavily subsidized office rent and then the right to dip into our public purse for innovation and technology subsidies that Shenzhen won’t give them. While most Asia-Pacific (APAC) markets, with the exception of China, began to shake off regional Covid restrictions in 2022, investors faced other, but no less dangerous, risks in 2023: higher inflation , rising interest rates, government and uncertain levels of private sector debt and the impending global recession.
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In the long term, offices will remain an asset class, although their appeal has slowed for a while as investors begin to grapple with new normal demand dynamics such as:
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The persistent structural shortage of logistics space in Asia Pacific shows no signs of abating, especially as online retail continues to grow rapidly. But the rapid decline in the rate cap seen in recent years has many investors questioning whether the industry has moved too fast, especially when interest rates have risen to the point where margins are almost non-existent. However, with a backlog of new capacity, demand for space will continue, while strong rent growth should soon restore income spreads without undermining the cost of capital.
Transaction volume declined in 2022, indicating a waning interest among mainstream investors in conventional retail assets, although non-discretionary sub-types are gaining ground. However, in the long term, the success of well-performing properties in good locations will continue, and profitability should begin if landlords and tenants can find a successful formula for reimagining properties in a way that works for mutual benefit.
Asia-Pacific markets have seen a recent surge in apartment building construction as global institutional investors target the sector for long-term, reliable income streams and short-term rents that can be easily discounted to accommodate inflationary pressures. Japan is the only institutional market in the region, but foreign investors are now looking to Australia and China to locate new apartment building markets. Doubts persisted in some quarters, however, as questionable demand and aggressive underwriting led to extremely tight rate caps, a strategy that could backfire if interest rates rise.
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While tourist numbers in the Asia-Pacific region still lag far behind Western markets, recovering tourism markets are finally bringing relief to the long-suffering hospitality sector. Although cash flow is now recovering, debt levels remain high and many regional hotel properties can still trade at discounted levels. Investors are targeting Japan as a potential market for deals in 2023.
The stagflationary combination creates an environment for which there are no modern plays. Investors must adapt to the new market reality, which brings many fundamental changes
Cheap and easy liquidity has had a predictable effect on real estate over the years, driving up property prices and driving down yields. But as interest rate rises are now starting to average out, asset yields must rise with them to support the cost-of-debt spread. This process has so far been slow in APAC markets, although both Australia and South Korea have begun to see a degree of rate cap expansion. Ultimately, however, many respondents expect regional cap rates to rise by an average of 100-150 basis points in 2023. The exception may be Japan, which is expected to maintain a very low interest rate environment, so rates in Japan should remain unchanged. Relatively stable, making Tokyo a magnet for foreign investment funds.
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Investors have begun to realign strategies in favor of more defensive asset types, particularly with an emphasis on features such as rent indexation, shorter lease terms that can be changed more easily, and reliable recurring income. One such area is “bed-space,” with subtypes such as apartment, hotel, senior housing, and student housing. Logistics, where structural deficits will continue to dampen demand and where rents are typically a relatively small part of total business costs, is another matter. Specialized asset classes such as data centers, cold storage and life sciences have “sticky” qualities, as well as long leases tied to indices and typically higher rents.
Build-to-core strategies have become popular in recent years as a way to create new product amid a general shortage of high-quality building stock. But many new projects have been delayed by rising construction costs and interest rates, as well as weak forecasts for consumer demand.
Offices have always been the biggest recipients of regional investment capital, but questions about business demand, particularly with the continued practice of telecommuting, have reduced their popularity. However, demand remains for modern, quality buildings that are being sought by occupiers to bring employees back into offices. Investors are also leaving the retail sector and moving into new economy themes such as logistics, although retail profits and values have been overvalued to the point that more investors are viewing better, well-positioned retail assets as contrarians. dram.
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