Shui On’s SOCAM Ready to Flip Kowloon East Ginza Building for HK$386M

Vincent Lo’s SOCAM Development Limited is ready to sell off a commercial building in Hong Kong at a nearly 12 percent mark-up over what it paid to acquire the Kowloon East asset just six months ago, according to an announcement to the Hong Kong stock exchange.

The company, which is part of Lo’s Shui On Group, said that it has received a letter of intent from an unnamed buyer to purchase 93 Wai Yip Street in Kwun Tong for HK$386.68 ($49.5 million).

The would-be buyer has already made a deposit payment of HK$19.33 million on the 23-storey Ginza-style retail building, setting SOCAM on track to realise a capital gain of HK$83.18 million on a property which it acquired in December last year for HK$303.5 million.

SOCAM had purchased the building, which has a gross floor area of 27,727 square feet (2,575 square metres) at a 16 percent discount to a then-recent valuation by JLL, with the building said to then be approximately 36 percent leased.

In its disposal, Lo’s company is achieving a rate per square foot of HK$13,946 for the 2016-vintage building, which as of last year was earning monthly rental income of HK$253,470.

Although no current tenancy data has been provided for the asset, people familiar with the building said that vacancy levels for the building fifteen minutes’ walk from the Ngau Tau Kok metro station remain high.

Ginza-Style Buildings Search for a Market

The developer’s intention to sell the vertical retail centre, which was promoted as the first Ginza-style building in the Kwun Tung area when it opened in 2016, is the third attempted disposal of a Ginza-style building in Hong Kong within the last twelve months.

In May last year, Hugo Lam Chi-fung put a Ginza-style commercial building at 487-489 Lockhart Road in Causeway Bay on the market for HK$1.3 billion after the investor had purchased the 26-storey asset from Henry Group ten months before for HK$965 million.

In the same month, Henderson Land Group and Lai Sun Group agreed to sell a commercial building in Tsim Sha Tsui to an undisclosed buyer for HK$4.1 billion.

Just over a year and a half ago, CLSA Capital Partners sold Zing!, a Ginza-style retail tower in Causeway Bay’s shopping district, for HK$1.9 billion ($243 million) to a Macau-based consortium which paid 17 percent below CLSA’s asking price.

Hong Kong Retail takes a Hit

SOCAM will be disposing of the Kwun Tong property at a time when recent government figures show that retail sales in Hong Kong have dropped 4.5 percent year-on-year from April 2018.

According to property agent Knight Frank, retailers have adopted a cautious approach to expansion in recent months, and leasing momentum has slowed down as a result, exerting a downward pressure on rents.

The property agent warned that Hong Kong’s retail market would face considerable headwinds in the near term, while there may be a longer-term impact as a result of the dispute over trade tariffs with the US and the extradition law protests.