Prices of offices, industrial buildings and retail space in Hong Kong have plunged due to the Covid-19 epidemic, showing the city’s non-residential property markets may have entered their first down cycle in a decade.
The Hong Kong Monetary Authority (HKMA) announced on Wednesday relaxation of countercyclical macro-prudential measures for mortgage loans on non-residential properties. The loan-to-value ratio caps for mortgage loans on non-residential properties were adjusted upward from 40% to 50% for general cases. The adjustment took effect on 20 August.
“With the pandemic and escalating geopolitical tensions continuing to weigh on business confidence, non-residential property markets are likely to remain under pressure,” HKMA chief executive Eddie Yue said.
“The outlook for the Hong Kong economy and the property market remains highly uncertain,” Yue said, adding that the HKMA would continue to monitor developments closely and introduce appropriate measures in response to changes in the property market cycle to safeguard banking stability.
The relaxation of mortgage rules for non-residential properties would help property owners sell their properties and improve their cash flow, said Cookie Wong Wing-yan, managing director of Ricacorp Mortgage Agency. However, it was not enough to offset the lower valuation of the non-residential properties.
Wong suggested that the applicable loan-to-value ratio caps for mortgage loans on non-residential properties should be further increased from 50% to 60%.
Cho Tak-Ming, chief vice-president of mReferral Mortgage Brokerage Services, said it was the right time to loosen mortgage rules for non-residential properties because small and medium enterprises could borrow more to support their businesses. Cho said he expected that the HKMA would further relax its mortgage loan policies.
Prices of grade-A offices fell month-on-month for a 13th consecutive month in July as sellers were lowered their asking prices after a so-called third wave epidemic broke out in the city, according to data compiled by Midland Realty. Prices declined 0.8% in July from June or 15.4% from the peak in May 2019.
Meanwhile, rentals of grade-A offices dropped 1.2% month-on-month in July or down 24.8% from the peak in May 2019.
Hong Kong’s non-residential property prices declined after anti-extradition protests emerged in the city in June 2019. They were further hit by the epidemic in the first half of this year. In late June, the Chinese National People’s Congress standing committee’s move to impose the national security law for Hong Kong also added pressure on the city’s property markets. Some United States firms said they would move out of Hong Kong.
Some commercial property owners cut prices because they were pessimistic about future prospects.
Leung Moon-lam, a co-founder of China South City Holdings, recently sold 16,276 square feet of office spaces at K83, a commercial building in Kwai Chung, for HK$183 million (US$23.6 million), 22% down from his purchase price of HK$235 million in 2018. He also suffered a loss of HK$22 million in transaction and tax expenses, according to market experts.
Besides, a 1,580-square-feet retail space at the lower floor of The Sharp, a commercial building in Causeway Bay, was sold for HK$30 million, down 47% from the price of HK$26.88 million in 2013, according to local newspapers. A 605-square-foot industrial flat at W212 in Tsuen Wan was sold for HK$5.06 million, down 12.5% from HK$5.79 million in 2018.
Tycoon David Chan Ping-chi, known as “King of Cassettes,” sold his 70% stake in an office space on the 42nd floor at The Center, an office tower in Central, for HK$405 million, roughly the same as his purchase price in 2017. It was said that the buyer was billionaire businesswoman Pollyanna Chu, who owns the remaining 30% stake.
Chan was also planning to sell the entire Kodak House in North Point for HK$1.8 billion. If sold, Chan will make a huge profit as he bought the commercial building for HK$140 million two decades ago.
Eric Ong, a director of Midland Realty, expected that prices and rentals of commercial buildings would rebound in the fourth quarter due to sufficient market liquidity and an improving epidemic situation, offsetting the loss in the third quarter.