Sales of distressed commercial property in Hong Kong surged in the first half of the year, accounting for about three-quarters of the total, and unusually high levels of activity are expected in the coming months, according to CBRE.
Distressed sales typically account for less than 10% of commercial property transactions in the city, but investors are finding it increasingly difficult to repay debt as interest rates have risen to a 23-year high in the 16 months since March 2022, according to property consultancy firms.
Total commercial property transactions in the first half of the year totaled HK$23.1 billion (US$2.95 billion), the second lowest half-year total since the second quarter of 2008, according to CBRE. Distress sales accounted for HK$16.8 billion, or 73 percent of total investment during the period. The data includes commercial property transactions worth more than HK$77 million each.
“In the second half, [distressed sales] “Interest rates remain elevated and a rate cut is unlikely before September,” said Reeves Yang, executive director and head of capital markets at CBRE Hong Kong.
He further noted that while real estate assets have yields of around 3.5 per cent, many existing asset owners face significant pressure from high interest costs of around 6 per cent.
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Why Hong Kong's housing market has become one of the most unaffordable in the world
Why Hong Kong's housing market has become one of the most unaffordable in the world
In May, a 5,171-square-foot mansion at 10B Blackslink on the Peak linked to Hui Chia-yan, founder of the liquidated China Evergrande Group, was sold by creditors to a private company for HK$448 million, 44 percent below the HK$800 million value an appraiser estimated the property was worth. Mortgaged by a bank and owned through a company, the property was classified as commercial property.
One Harbour Gate East Tower in Hung Hom, one of a number of assets seized from Chinese businessman Chen Hung Tian last year, is being put up for sale for a second time amid weak office market sentiment.
A statement released last week by Savills, the sole agent for the sale, said the administrators had put the tower back on the market for fresh bids.
When it was first put on the market in May 2023, Savills had said the prime harbourfront property could be worth about HK$7 billion in 2022. The property was purchased in 2016 for HK$4.5 billion.
Even as more distressed assets are being sold off, some onlookers may soon find the right timing to make an acquisition.
“There's a lot of investment capacity in the market,” said Eugene Wong, a partner at Mayer Brown.
“Investors are thinking that the real estate sector may be at bottom now because interest rates have been peaking for a while,” said Jasmine Chiu, another partner at the law firm. “Investors will be assessing whether distressed properties are being fairly priced.”
Additional reporting by Eileen Chuang