Hong Kong property: fire sales dominate 1st-half commercial deals as debt weighs on owners

Name: How Hong Kong's housing market became among the world’s most unaffordable
Uploaded: 2024-07-09T00:30:09.000Z
Duration: 13 min
Description: How Hong Kong's housing market became among the world’s most unaffordable

Distressed commercial property sales made up HK$16.8 billion, or 73 per cent of the total deal value, in the first half, versus 10 per cent in previous years, CBRE says

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Creditors of China Evergrande sold a luxury house owned by the developer’s founder in May to recover debt. Photo: Handout

Cheryl Arcibal

Published: 8:30am, 9 Jul 2024Updated: 1:44pm, 9 Jul 2024

Sales of distressed commercial real estate in Hong Kong jumped in the first half of the year, accounting for about three quarters of the volume, with the coming months likely to see an unusually high number of such transactions, according to CBRE.

Distressed sales typically account for less than 10 per cent of commercial property transactions in the city, but with interest rates climbing to a 23-year high in a span of 16 months since March 2022, investors have found it increasingly difficult to service debt, the property consultancy said.

In the first six months of the year, overall commercial property deals amounted to HK$23.1 billion (US$2.95 billion), the second-lowest half-year total since the second quarter of 2008, CBRE said. Fire sales accounted for HK$16.8 billion or 73 per cent of the total investment in the period. The data encompassed commercial property deals each valued at more than HK$77 million.

“In the second half, there will be something like 50 per cent of [distressed sales] because interest rates are still at a high level and a rate cut is unlikely to happen earlier than September,” said Reeves Yan, executive director and head of capital markets at CBRE Hong Kong.

Many existing asset owners are facing tremendous pressure from the high interest costs of around 6 per cent, while the return on property assets is about 3.5 per cent, he added.

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How Hong Kong's housing market became among the world’s most unaffordable

In May, a 5,171 sq ft mansion, 10B at Black’s Link on The Peak, linked to Hui Ka-yan, the founder of the liquidated China Evergrande Group, was sold by creditors to a privately owned company for HK$448 million, 44 per cent less than the HK$800 million that appraisers had estimated the property to be worth. The property, which was mortgaged to banks and owned through a company, was classified as commercial real estate.