One of the most prominent members of an investment consortium which paid a record $5.15 billion to purchase an office building in Hong Kong’s Central district in November 2017 has just sold a chunk of his holdings in the 73-storey tower for nearly 18 percent less than the average price per square foot paid for the building three years ago, according to local news reports.
David Chan Ping-chi, known locally as the King of Cassettes for having made his fortune as chairman of local tape and film manufacturer Acme Group, has seen the value of the nine floors he purchased in the Queen’s Road landmark fade nearly as quickly as sales of 8-track players, with the local tycoon having sold his 70 percent stake in the building’s 42nd floor for HK$405 million ($52.6 million), according to a report in Hong Kong’s Sing Tao Daily.
That price for the 21,379 square foot (1,986 square metre) floor works out to HK$27,100 per square foot – or 35 percent less than Chan was able to charge when he sold the 38th floor of the building to an unnamed mainland investor for the equivalent of HK$42,000 per square foot in May 2019.
The sale, which marks the lowest price paid for a piece of the Center since it changed hands three years ago, comes after the volume of real estate assets traded in Hong Kong fell by 80 percent during the first half of 2020, according to a recent report by Real Capital Analytics, with growing political tension and the coronavirus pandemic combining to boost office vacancy in Central district to 5.7 percent in July.
Kingston Boss Buys Out Partner
Chan sold his 70 percent stake to Kingston Financial Group boss Pollyanna Chu, who already held the other 30 percent equity in the asset, according to a report in local news site HK01. Both Chan and Chu were part of a team of local investors who banded together to purchase the Center from Li Ka-shing’s CK Asset Holdings in 2017, in what many now see as the high water mark for Hong Kong’s commercial property market.
Joining Chan and Chu were Shimao Properties chairman Hui Wing Mao, Hugo Lam Chi-fung and “Minibus King” Ma Ah-muk as well as other investors who together made the Center Hong Kong’s most expensive building, and added another chapter to Li Ka-shing’s legend, when they paid an average of HK$33,000 per square foot for the landmark office tower.
Since that time, a combination of tightening financial controls on the mainland, social unrest and Covid-19 have brought average office rents in Hong Kong down for four consecutive quarters, cutting more than 23 percent off leasing rates since April of 2019, according to JLL.
In comments cited in the Sing Tao account, Chan, who has been selling multiple properties in recent months, indicated that he sold his stake in the office floor at this time due the mixed ownership of the asset, while also pointing to the pandemic’s impact on the market.
Chan also explained that the 42nd floor includes two common areas that occupy 6,000 square feet, making the floor plan less than ideal. Earlier market reports had indicated that the entire floor was available for purchase at a rate of HK$35,000 per square foot before this latest trade became public late last week.
Market Shift Punishes Speculators
With sales of strata title office assets hitting record highs in late 2017, The King of Cassettes and his cohort had financed their purchase of the Center with bonds paying interest rates of over 15 percent. That bold bit of financing may have been encouraged by the opportunity to turn a quick profit selling off the tower level by level after the Center’s highest floor was sold for a record HK$55,854 per square foot in September of 2017.
With the Hong Kong real estate market having slowed down in the face of tighter capital controls in mainland China starting in 2018, the Center’s new owners ran in tougher times last year when months of protests undermined economic confidence.
By November, Ma Ah-muk, who bought 13 floors in the Center, was motivated to conduct a quick sale of 37 Cameron Road in Kowloon for a reported HK$448 million, with the Minibus King cutting 30 percent from the price he had been asking for the property six months earlier.