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Real Estate Situation

Aggressive investors queue up to go bankrupt

 

Damon Ho

2nd December 2023

As time goes by, the Christmas Eve is coming to the town. Earlier of this year, the property market rebounded slightly in the first quarter, but from the second quarter, the property market experienced a lengthy period of decline. In fact, during this downturn, the deep fall of shops and commercial properties is much more serious than that of residential premises. 

Given that most of the buyers of shops and commercial properties are investors, and many of them have been entering the market through highly leveraged borrowing. Since the federal reserve's hike rates policy was implemented, investors are under pressure to repay their loans in a high-interest environment during this period. 

For investors, the repayment of hike rates is only part of their nightmare, and the issue of the banks' all-out call loan action will cause a heavier burden to shops and commercial property borrowers with a pile of negative equities. In order to safeguard their financial safety, banks will not hesitate to request owners to pay the valuation differences if the properties have become negative assets. 

In the past, some investors continued to purchase properties by remortgaging, or even borrowed short-term loans at a 10% higher rate to finance their short-term payments. However, the economic environment has been deteriorating, resulting in the shops' prices dropping of more than 50% per square foot, and commercial properties' prices were less than 40% in general. One month long ago, one investor sold a shop with a market value of one hundred million HK dollar, which valued three hundred million HK dollar three years ago. Despite this situation, the banks do not hesitate, so they havebeen speeding up their call loans action.  

The year 2024 is coming, the investment markets are still sluggish, and it seems to have no  chance to recover for the time being. Many investors will default on their shops and commercial properties' mortgage payments, and it is not surprising that investors will queue up to go bankrupt from the second half of the year. 

 
 
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1. HK needs to maintain its global maritime hub 2023-12-02 13:00:28

In the pursuit of maintaining its status as a global maritime hub, Hong Kong stands at a crucial crossroads this year, recognising the need for more than just a profit tax regime to lure in more shipping companies.

Experts, such as Dr. Eugene Wong from The Hang Seng University of Hong Kong, point out that more work has to be done for companies to set up headquarters in the city and for more vessels to fly its flag.

Hong Kong Business interviewed Wong, associate head and associate professor at the university’s Department of Supply Chain and Information Management, on the sidelines of the recent Asian Logistics, Maritime and Aviation Conference 2023 held during the Hong Kong Maritime Week

2. A mega shop at Star House leased to dep store 2023-12-02 22:40:03

A mega shop at Star House in Tsim Sha Tsui has been leased by a Japanese-style department store at HK$1 million per month, or HK$235 per square foot, after being empty for over two years - a 44 percent drop from the pre-pandemic level.

With an area of 4,260 sq ft, shops 1 & 2 on the ground floor of Star House are located close to the Tsim Sha Tsui ferry pier, facing Salisbury Road, a popular tourist attraction.

The previous tenant was local personal care chain Watsons, which moved out in 2021 amid the Covid-pandemic after renting the place for nearly 23 years.

Watsons had paid as much as HK$2 million for monthly rent at the peak time tumbling 50 percent compared to the peak price.

3. Nine projects launched six failed to secure bids 2023-12-05 20:17:21

Of the nine projects launched for tender in 2023, six failed to secure bids making 2023 the year with the highest number of failed bids in Hong Kong’s land supply history.

Colliers primarily attributed the failure of these tenders to “the mounting pressures faced by property developers in large-scale development projects.”

“These challenges include subdued demand in the first-hand residential market, a large number of unsold units accumulated by developers, anticipated high supply in the next two to three years, increased capital costs due to rising interest rates, and long development processes which further amplify risk factors. Consequently, bidding enthusiasm among developers has been heavily dampened,”  Dorothy Chow, executive director, Asia, Valuation & Advisory Services, at Colliers.

4. More Hong Kongers used their credit cards 2023-12-06 13:48:31

More Hong Kongers used their credit cards in the third quarter of 2023, according to data from consumer credit insights company TransUnion.

Average consumer credit card utilisation rose across all risk tiers during the quarter, compared to the same period in 2022. At the same time, the number of new-to-credit consumers in the city rose by 32% year-on-year (YoY). This is reportedly the most significant.

“The substantial card balance growth has been driven by increased spending capacity, well supported by limit increases on new and existing cards issued over the past quarter,” said Weihan Sun, principal of Research and Consulting for Asia Pacific at TransUnion. 

5. Potential buyers entering market at quickerpace 2023-12-07 12:37:05

With stamp duties in Hong Kong having been reduced and a pause in interest rate hikes by the United States, potential buyers are entering the market at an accelerated pace, resulting in some estates seeing deals being made, albeit with slight discounts.

A 603-square-foot, two-bedroom unit on a lower floor in Tai Koo Shing, Quarry Bay, was recently put on the market with an asking price of approximately HK$8.8 million.

It was sold off for HK$8.5 million, after some to-and-fro negotiations, or around HK$14,096 per square foot, according to Midland Realty, which was in line with current market values.

At Liberte, Cheung Sha Wan, a high-floor two-bedroom apartment with an area of around 517 sq ft was listed for sale at HK$8.8 million in September.