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In the period from 1986 to 1991, Sovereign concentrated its investment activities in Asia. In 1987, with Hong Kong preparing to transition to Chinese rule, Sovereign acquired and redeveloped a substantial portfolio of prime commercial real estate.
A Crisis of Confidence
The Hong Kong property market had risen to great heights between 1979 and 1981, but then tumbled as rapidly and as far as it had climbed due to a massive oversupply of space. Merchants of gloom predicted that it would be many years before the market absorbed the oversupply.
Signs of Recovery
The slump in property prices was reflective of Hong Kong's broader economic recession in the mid 1980s. This was exacerbated by the flight of capital following British Prime Minister Margaret Thatcher's announcement on 19th December 1984 of the decision to return the colonial territory to China in 1997. It was clear that an inflow of capital with a long-term perspective was required to end the uncertainty over Hong Kong's future.
A Vote of Confidence
It was against this background of uncertainty that Sovereign bought Century Square, a prominent commercial property in the centre of Hong Kong. Over the following years, Sovereign acquired three further prime real estate properties - California Tower, Bank of Tokyo Building and Finance Tower. Sovereign also invested in the securities of several Asian companies, with a primary focus on the real estate sector.
The Gateway to China
In 1988, commercial office rentals and valuations began to recover due to the resurgence of confidence and capital back into the territory. Hong Kong has an enviable track record as one of the world's most adaptable economies, able to recover quickly from economic setbacks. Hong Kong plays an important role as an international financial and trading centre, in addition to being the commercial gateway to China. But the ultimate sources of strength for Hong Kong are its highly flexible workforce and entrepreneurial managers.
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Background
This ‘Special Administrative Region’ has a high degree of political autonomy, and greater democracy and press freedom than in mainland China. Since the end of British control in 1997, tourism and investment from Chinese firms on the mainland has boomed. Hong Kong is an advanced and wealthy economy with per capita income well above the average for China. It offers investors not only a ‘gateway’ to the Chinese market, but also a highly transparent and open investment climate. Hong Kong residents enjoy long life expectancy and world-class education, although living space is extremely limited for most.
For more information, please visit the Legatum Prosperity Index country profile of Hong Kong:
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