Deal volume in Hong Kong’s commercial property market fell 45 percent year-on-year to HK$18.1 billion ($2.3 billion) in the first six months of 2023 as high interest rates continued to discourage investors, according to Cushman & Wakefield.
Despite a gradual return to normalcy after the reopening of the mainland border, rising financing costs and limited options for high-yield properties in the market have led to an impasse between buyers and sellers, the consultancy said Monday as it issued its first-half investment report covering the Asian financial hub.
For non-residential transactions of more than HK$100 million in size, 31 deals were recorded in the first six months of the year — down from 97 for the whole of 2022 and 187 in 2021. The average deal size during the half stood at HK$585 million, down from HK$644 billion in full-year 2022.
“Since the border reopened in February, the market has been anticipating an improvement in overall investment sentiment,” Tom Ko, Cushman & Wakefield’s executive director and head of capital markets for Hong Kong, said in a release. “However, the impact of interest rate hikes has outweighed the boost from the border reopening.”
Bottom-Fishers Welcome
Hong Kong’s de facto central bank moved in lockstep as the US Federal Reserve hiked interest rates 10 times during the cycle that began in March of last year, before pausing at the most recent meetings this month. The run-up has driven the banking mortgage rate for commercial properties in Hong Kong to as high as 6 percent, deterring investors from entering the market.
“Nevertheless, property prices have corrected notably since the pandemic, creating an opportune time for local investors and end-users to take advantage of the current market and bottom-fish,” Ko said. “As a result, these buyers were the most active in 1H 2023, with local capital accounting for almost half of the total transactions.”
Private land sites made up more than 30 percent of transaction volume among all sectors during the first half. The largest deal tracked by Cushman & Wakefield was the HK$5 billion sale of a residential site at 30-38 Magazine Gap Road, the property known as Cameron Mansions.
The 72-year-old Peak mansion, which is to be redeveloped into a super-luxury residence, was first put up for sale in 2019 by the family of Malaysian tin-mining tycoon Loke Yew with an expected price of HK$6 billion, but it was later withdrawn from the market.
Office and retail assets each contributed 21 percent of deal volume in the January-to-June period, followed by hotels (19 percent) and industrial (6 percent).
Ko said the market anticipates a further increase in interest rates of 25 to 50 basis points during the second half as the hawkish environment lingers on.
“We believe that the market will continue to be supported by end-users and capital-rich investors with limited assets looking to bottom-fish before prices fully rebound,” he said. “We expect total volume of large-size non-residential transactions to reach around HK$50 billion for the full-year 2023.”
Residential Sales Dive
In a separate Hong Kong report released Tuesday, CBRE said residential sales totalled 4,003 units in May, falling 12.7 percent from the previous month’s levels after tumbling 31.5 percent in April. Transactions for residential properties worth at least HK$20 million plunged 27.6 percent from April to just 210 units in May.
The setbacks followed a strong first-quarter rebound and came as the government considered further relaxing the loan-to-value ratio for first-time homebuyers after introducing modest tax relief in February.
“Surging financing cost remains the main factor hindering property buyers from entering the market,” said Eddie Kwok, senior director in valuation and advisory services at CBRE Hong Kong. “Transaction volume is expected to remain largely the same, fluctuating around 4,000 units per month in the near term, with roughly one-fourth coming from primary sales.”
Kwok said buyers may opt to purchase property from developers at the moment because of more incentives on offer.
In the primary sales market, May’s top transaction was for Garden Mansion 1 at K Wah International’s K Summit project in Kai Tak, with the luxury home selling for HK$136.8 million ($17.5 million) or HK$42,897 per square foot.
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