Schroders Marketing Hong Kong Building at Two-Thirds of 2016 Purchase Price

Schroders has launched a fresh marketing campaign for a Kowloon residential block with the UK investment manager offering the building at 176 Nathan Road in Tsim Sha Tsui at a third off of its HK$600 million ($77,218 million) purchase price eight years ago.

In a joint announcement on Wednesday, property consultancies Savills and Knight Frank said they have been engaged to find a buyer for the Nate, a combined residential and retail complex in the bustling commercial district for HK$400 million.

With properties in some of Hong Kong’s top commercial districts changing hands at less than half their purchase prices from the previous decade, some market analysts predicted to Mingtiandi that the 32,000 square foot (2,972 square metre) would struggle to bring in offers at the guide price.

In a third quarter report release this month, property consultancy Colliers noted that nearly half of investment transactions in Hong Kong during the period saw sellers suffer. “Notably, distressed and assets sold at a capital loss made up 48 percent of the big-ticket volume during the quarter, as investors took advantage of significant price discounts amid the ongoing market adjustments,” Colliers said.

Hoping for More Demand

Schroders had agreed to purchase 176 Nathan Road in 2016 when the company’s Hong Kong operation still did business as Pamfleet, with the company working with local asset manager District 15 to refurbish the 11-storey block. Schroders declined to comment further on the sale, while District15 had not yet responded to Mingtiandi inquiries by the time of publication.

In a marketing exercise in the first quarter of this year the partners had worked with Savills to find a buyer at a guide price of HK$550 million, with the brokerage now pointing to improving market conditions as a selling point for the Nate.

“The Property’s latest guide price is approximately HK$400 million, representing a significant discount compared to the market price of HK$550 million during the offering in March,” said Savills managing director for investment Peter Yuen. “With the market entering a rate-cut cycle and benefiting from favourable policies such as the ‘Top Talent Pass Scheme’ and the doubling of non-local student’s quotas, it is anticipated that the demand for residential or co-living rentals will continue to increase, further driving up residential rents.”

Following the earlier marketing exercise, the owners are said by market sources to have rejected an offer of HK$330 million for the property. The property is said by analysts to be the subject of a loan from the Bank of Communications which has an outstanding balance of around HK$330 million with the institution described as unwilling to write off that loan.

The current guide price is equivalent to HK$12,500 per square foot with the submission period for expressions of interest having commenced on Wednesday with the deadline set for 29 November.

Aiming for the Student Market

Savills pointed out that Schroders and District15 spent around HK$100 million for capital improvements to the property, which has 71 studio rooms along with amenities and communal areas above a five-storey retail podium.

Located where Nathan Road intersects Hillwood Road, the Nate is within walking distance of both the Tsim Sha Tsui and Jordan MTR stations, with the marketing agents also touting its proximity to the West Kowloon High Speed Rail station, Hong Kong Polytechnic University, and Hong Kong Metropolitan University.

These attributes stand out as the city sees an upswing in mainland student enrollment driving demand for student accommodation particularly after Chief Executive John Lee said in his policy address this month that the government would boost the ‘Study in Hong Kong’ brand, to attract international students.

“Currently, the supply of student accommodation is significantly lagging behind demand. Additionally, the government plans to improve dormitory facilities by relaxing regulations related to planning, land administration, and building plan approvals,” said Willis Mak, executive director and head of private clients for Knight Frank Greater China. He added that, “It is believed that projects in close proximity to universities will be particularly sought after.”

Discount Shopping

Hong Kong property owners have had some success selling buildings for use as student housing with local firm Crystal Investment having picked up a pair of Kowloon assets this year for a combined HK$343 million.

In July Hong Kong Metropolitan University acquired the Urbanwood Hung Hom hotel from the Law family behind local developer Yu Tai Hing for use as student housing with the asset reported to have changed hands for around HK$1 billion.

While deal activity recovered in the third quarter from the preceding three months, according to Colliers, transactions like touchscreen tycoon Yeung Kin-man’s purchase of the Camelpaint Centre in Kwun Tong involved the previous owners accepting a 62 percent mark-down from the original purchase price.

In February of this year JLL launched a public auction for retail space in Kowloon’s Harbourfront Landmark complex on behalf of the same Schroders fund which manages the Nate, with that marketing exercise ultimately failing to result in a sale after the auction was cancelled.