The uncertainties of the US-China trade war negotiations and the political turmoil in Hong Kong have combined to cool down investor interest in Hong Kong’s property market, with sales of retail real estate bearing the brunt of investor reluctance to enter the market and the impact of falling tourist arrivals.
According to a recent report by property agency Midland IC&I, 60 shop transactions were recorded in Hong Kong during the first three weeks of August, down 13 percent from the same period of the previous month, while the value of those transactions totalled just HK$1.29 billion, some 46.7 percent less than the tally from the first three weeks of July.
The downturn was most evident in four of Hong Kong’s prime retail areas – Central, Causeway Bay, Mong Kok and Tsim Sha Tsui, where there were only four shop transactions totalling HK$104 million, a 73.2 percent descent from the value of retail properties traded in those districts through the 21 July.
Non-core shopping areas recorded a total of 56 transactions worth a total of HK$1.19 billion, with that value down 41.7 percent from July’s figure.
More Shops Selling for a Loss
Tsuen Wan in Hong Kong’s western New Territories showed some resilience as a 9,520 square foot retail space at the ground and first floors of the H Cube serviced apartments at 118 Yeung Uk Road reportedly sold for HK$130 million. Another 39,806 square foot space located at the retail center of Greenview Court in Tsuen Wan sold for HK$170 million this month, trading at a price equivalent to HK$4,270 per square foot, with the buyer said to be one of the founders of the co-living operator Campfire.
Of the shops transacted, the number of units being sold at a loss has increased, according to the Hong Kong Economic Times. A first-floor unit inside the shopping mall Infinity Eight in Choi Hung sold for HK$4 million, four years after the seller had purchased it for HK$6.72 million in 2015.
An investor also reportedly lost money on a 50 square foot streetfront shop at 271 Lockhart Road in Wanchai which sold for HK$4 million – HK$5.1 million less than the HK$9.1 million which the owner had spent to acquire it.
According to Stanley Poon, managing director of Centaline Commercial, Hong Kong’s recent social unrest has had its greatest impact on retail values as many street front shops were forced to close as clashes between anti-government protestors and police have escalated. A number of tenants have already requested that landlords reduce their rent by 10 to 50 percent the brokerage chief said, shaking investor confidence in the market.
Poon predicted that Hong Kong’s retail investment market is likely to continue to decline in the coming three to six months and cautioned that the volume of shop transactions may remain low for the rest of the year.
Falling Sales and Declining Visitor Arrivals Push Market Down
Even before the protests, Hong Kong’s retail situation looked discouraging with government figures showing that retail sales fell 1.9 percent during the first five months of 2019 compared to the same period last year. That shortfall widened to 6.7 percent in June, with July expected to see a double digit slide.
With Hong Kong’s on-going protests becoming increasingly violent, a number of countries have warned their citizens against travelling to the city. In August, the number of tourist arrivals in Hong Kong decreased by 30 percent year on year while local consumers opted to stay in and became reluctant to spend.