Cash-rich investors gain leverage as Hong Kong property prices fall

Investors are snapping up properties at prices that are up to 69% lower than historical highs.

The property investment landscape has become increasingly favorable for cash-rich investors and end users as more property investors put their assets up for sales at discounted prices.

With a growing supply of foreclosed properties available in the market, these buyers were able to negotiate better prices from sellers in distressed financial situations. Discounted properties can generate a rental yield of between 5% to 6%.

“Sustained high cost of fund has led to more property investors put their assets up for sales at discounted prices, but bank’s reluctance to lend into the commercial real estate market restricts investment demand, with cash-rich buyers and end users dominating the market,” said Jack Tong of Savills Research & Consultancy. 

One of the reasons is because banks adopted a more conservative lending approach because interest rates remained high. This led to a noticeable reduction in commercial lending and resulting in higher funding costs for borrowers. 

In the office sector, 88WL, a newly developed commercial property in Sheung Wan was sold to a local investor for only HK$700m ($117.5m) when it was originally acquired for HK$1.6b ($268.6m).

The low unit price was a key incentive in the buyer's decision, in addition to the expected yield of approximately 5% when fully leased.

Similarly, two entire floors of the Bank of America Tower, sold for HK$18,732 ($3,144) and HK$18,012 ($3,023) per sq ft, respectively, marked an almost 60% decline from the highest unit price achieved in the building. 

The 29th floor of the No. 9 Queen's Road Central (QRC) commercial building was acquired for HK$22,514 ($3,779) per sq ft, again a more than 60% discount to the then-peak prices.

In the retail sector, China Resources Group acquired the retail podium and public car park at Alto Residences for HK$540m ($90.6m). 
The retail podium offers a 6% return, which could lure long-term investors even in the high interest rate environment.

(HK$1 = $0.17)