[Sponsored article] Hong Kong family offices stand to gain from the city’s position as a private wealth management hub, with luxury residential and commercial real estate poised to become a significant asset class for their investment portfolios.In addition, the family office sector is expected to gain from the Hong Kong government’s announcement last week about the latest measures to develop the city’s financial and professional services.New areas of focus include innovation and technology, green investment, philanthropy, and arts and culture.“There is an increasing appetite for property and real estate in Hong Kong,” says Oscar Chan, head of capital markets in Hong Kong at JLL.“This is due largely to the declining performance of other financial products such as bonds, stocks and even crypto in the last few years.
These family offices are starting to look towards more tangible assets such as real estate, which they deem as a safer investment.” Traditionally, a family office was rooted in the idea of wealth protection through investments such as private equity and venture capital.According to “The World Ultra Wealth Report 2022”, less than 17 per cent of total assets held by the world’s wealthiest people is allocated to real estate, with the majority of assets allocated to public and private holdings, or held as liquid assets.As the pool of wealth continues to expand, and as ultra-high-net-worth (UHNW) families look for stability in times of market volatility and to preserve their wealth over the longer term, there is a growing need for solutions that achieve diversification in private wealth management for family offices.
Assets in luxury One such solution is luxury residential real estate.According to Chan, there has been an uptick in enquiries from family offices with regards to investment in this sector.The poor performance of financial products such as bonds, stocks and even crypto currencies has prompted investors to seek out alternative assets, like real estate, to diversify their portfolios.More family offices are looking to allocate at least 10 per cent of their wealth to real estate, and he expects the luxury real estate market to grow between 5 and 10 per cent this year.
Another area of interest for family office investors is hotels.Investors are looking to divest away from their main business line and main business location, says Jonathan Law, vice-president, Asia-Pacific investment sales at JLL Hotels & Hospitality Group.“Hotels are an asset class that can generate income and simultaneously serve as a hedge against inflation, as room rates can be repriced on a real-time basis,” Law explains.“Investors also like to invest in cities they have travelled to and are familiar with.” With the travel slump behind us, Law says there are plenty of opportunities around the globe for investors looking to expand their portfolio.
“As interest rates rise around the world, it is putting stress on some hotel assets,” he says.“Owners may be cash-rich but are now willing to consider selling at the right price.” There are now major opportunities in popular tourist destinations as travel restrictions are lifted.“We are seeing destinations such as Bali and Japan having a surge in tourism, while locations such as the Maldives are expanding their source markets to be less reliant on mainland China,” Law says.“And with China’s borders reopened, we can expect hotel performance to recover.” The trend of converting historic buildings into hotels also continues, including The Fullerton in Singapore and soon-to-open Six Senses Whitely London, and The Murray in Hong Kong.Law says this presents a golden opportunity for family offices in Hong Kong.
“Hotels are emotional assets and invoke memories,” he says.“A historical asset is a selling point for hoteliers; it enables travellers to experience life from another time while providing modern luxuries.” Wealth management hub Hong Kong’s mature financial industry has created a talent pool of expertise for the family office sector to grow and meet the specific needs of its investors.A transparent regulatory framework enhances the city’s wealth management capabilities, which in 2021 handled assets under management valued at HK$35.5 trillion (US$4.5 trillion), according to the Securities and Futures Commission.Hong Kong’s position as a cross-border private wealth management hub – which generated US$1.9 trillion in 2020 – and connectivity to mainland China, where the number of UHNW families is estimated at more than 84,000 – is leading to increasing investment demand from family offices in Hong Kong and other parts of Asia.
More than 29 per cent of the world’s UHNW population resides in the region, holding 28.3 per cent of global UHNW wealth.Confidence in Hong Kong’s potential as a regional hub for family offices was highlighted during last month’s budget address, when Financial Secretary Paul Chan Mo-po committed HK$100 million (US$12.7 million) over the next three years to help the sector flourish.The funding, which will be allocated through InvestHK, the government body charged with encouraging foreign investment in the city, will help develop wealth management talent to support the anticipated growth.
It will also be used to promote the city’s favourable financial environment to UHNW families in markets such as mainland China, the Middle East and Southeast Asia through high-profile summits, including Wealth for Good in Hong Kong, which took place last week.The announcement is part of the government’s strategy to harness the opportunities presented by the city being at the heart of a region home to so many UHNW individuals.
In December, the government introduced a bill – with retrospective effect from April 1, 2022 – to provide tax concessions for investments managed by eligible single-family offices.Hong Kong Chief Executive John Lee Ka-chiu says the goal is to attract no fewer than 200 family offices to set up or expand their operations in Hong Kong by the end of 2025.InvestHK, meanwhile, has established a family office support team offering services for the sector and to facilitate investors to establish family offices, to boost Hong Kong’s position as a leading family office hub.Filling the knowledge gap However, because family offices have become more prevalent in Hong Kong only in the last five years or so, there exists a gap in their asset management knowledge.JLL says only a small percentage of Hong Kong family office assets are invested in real estate that provides steady returns.“When it comes to holding a property, it involves heavy asset management,” Chan says.
“For example, the property might need to be upgraded in order to get better returns.” This is where JLL steps in to provide specialist investment advice.The global real estate firm provides a comprehensive service for family offices looking to invest in real estate in Hong Kong, offering professional consultancy in areas from market research and analysis to property management, asset management and leasing management.The headwinds of a post-pandemic climate, such as worldwide labour shortages, supply chain problems and inflation, will make it harder for hotels to generate profits.JLL’s Hotels and Hospitality Group has a dedicated team of industry experts who are able to guide them through every step of the process.
In the past five years, the group has completed transactions worth more than US$83 billion.The company has more than 350 professionals in over 20 countries, and a 120-strong Asia-Pacific team that covers the cycle of owning and managing a hotel – from investment sales and operator selection to hotel valuation and asset management.
“By having professionals in each location, we’re able to be the experts in the market and can guide our clients along their hotel investment life,” Law says.Find out how investors are responding to micro headwinds here , and read JLL’s latest snapshot of Hong Kong’s office, residential, retail and industrial property markets here ..